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Hello guys,
For (i) you evaluate if the report itself is good – for this you need to think about who will read it (will this person understand it? Isn’t it too detailed? If there is only financial data in the report, maybe this would be not comprehensible for the member of the board with no financial background?), what information does it contain (is this what the reader wants to know?) and how it is presented (maybe too detailed or no comments given? is there any comparable information, eg. previous period or the industry benchmarks?).For (ii) you assess the measures used by the company, so you need to think:
– do they address the mission, objectives and strategies of the company?
– are they both external and internal oriented?
– are they both short- and long-term oriented?
– are they both financial and non-financial?
– what’s the cost of measuring performance with this specific measure (in terms of collecting data and processing it) compared to the benefits gained from the measurement?
– is the frequency of the measurement sufficient?
– are the results from the measurement used by appropriate person/department?
etc.So in general, in (ii) you concentrate on if the measures are correctly chosen and calculated and if they are appropriate for this specific company, while in (i) you focus on how are they presented in the report. If there is no part (ii) in the question, I would include in (i) also some of the remarks about the choice of measures by the company in general (so aspects from (ii)).
Salama,
The formula for calculation of goodwill is:
consideration + NCI – FV of net assets = goodwillHere you have:
* consideration = 51.840 (the amount paid by Jolly)
* FV of net assets = share capital + RE at the date of acquisition. Here at the date of acquisition Roger was incorporated, so the RE were 0 at that date, but the share capital was the same as it is now, ie 57.600
* NCI – as there is no FV of NCI given you calculate is as a % of the FV of net assets; so it will be 10% * 57.600 = 5.760So we have: 51.840 + 5.760 – 57.600 = 0
There you go 🙂Oh my God, I went out of the classroom and thought “that was easy”, but now when I read your comments I am not so sure about it 🙁
I did sth totally different in 1b) – I wrote sth about the options given in different standards to measire assets in FV or not, but then I wrote sth about the difference between the financial value, which I interpreted as the consideration someone would like to pay for the company, and the FV of net assets, which is goodwill and about the fact that goodwill created internally cannot be recognised, so that’s why there’s a difference between the financial and fair value… :-/
And in 2a) I chose dinar to be the functional currency as the main current operation of the sub was to held a dinar valued bond.
Hope I’ll get sufficient points on consolidation.
I will give you still one example:
let’s say in case of Trailer, the recoverable amount was not 2.088, but 2.288,3. Then we would have:
FV of net assets (2.255) + grossed goodwill (80 * 100/60 = 133,3) – recoverable amount (2.288,3) = gross impairment (100)
Now this gross impairment considers both the group and NCI, so the imparment to be recognised by the group would be 100*60% = 60.
So after impairment your new value of the goodwill would be 80-60=20.
As this is a proportionate method, you recognise only the group’s impairment, so you decrease goodwill and RE. There’s nothing to recognise in NCI!Hello Tsang, that’s a littke bit tricky, but I’ll try to explain it to you.
First of all, only in the full goodwill method (fair value method) you allocate the goodwill impairement to the Group and to NCI.
1) In case of full goodwill method, you make the following calculations of impairment:
FV of net assets + goodwill in your group accounts – recoverable amount = impairment
This impairment is distributed to RE and NCI proportionally based on interest holding.
2) In case of proportionate method, you make the following calculations of impairment:
FV of net assets + goodwill in your group accounts * 100% / X% – recoverable amount = impairment (gross)
where X% is the group’s share in net assets.
And then: gross impairment * X% = group’s impairment.
Only this group’s impairment is recognised in RE, there’s nothing else to recognise in NCI.Ok, so in Traveler’s case the Group decided to use the full goodwill method only for Data. For Captive the proportionate method was used.
So when you calculate the impairment for both of these companies, in the case of Data you allocate the impairment of 50$ proportionally to group’s RE (80%) and to NCI (20%).
As for Captive, as the proportionate method is used) you do not allocate the impairement to NCI and the whole impairment (61$) is recognised in RE.In case of Trailer, that’s more complicated. Here NCI at acquisition is valued with proportionate method, so the impairment of goodwill will not be allocated to NCI.
So you do the same as in 2) above:
FV of net assets (2.255$) + goodwill (80 * 100%/60%) – recoverable amount (2.088) = gross impairment (300,3)
Now the problem is that this amount exceeds the grossed goodwill (80 * 100/60 = 133.3), so this impairment will be allocated first to grossed goodwill (133,3) and then the remaining amount to PPE (167).
The grossed goodwill is your goodwill in the books (80 = 60% * 133,3) and the potential goodwill recognised by NCI (53,33 = 40% * 133,3). This potential goodwill is not recognised in group’s books – it’s just potential.
So in your books you have the goodwill of 80 and this is what you need to impair to nil. And then you impair the PPE in the amount of 167$ – as there is a loss in the value of PPE, 60% of this loss (100,2) will be held by the group (therefore decreases RE) and 40% of this loss (66,8) will be held by NCI (therefore decreases NCI).That’s really tricky, but I hope that I helped at least a littke bit. The most important is to remember the methods given above in 1) and 2)?
Good luck!
Just consider the asset in the defined benefit plan as some sum of cash that you collect to be able to pay the benefit later.
So generally, as you have an obligation and you pay off some money to an employee, usually you would debit the liability and credit cash. And that’s what you do here – you credit the asset that you have accumulated for this purpose. The asset can have a form of cash or other cash equivalent.Hello, do you know for example the Unilever company? They produce a lot of different stuff, including food (Lipton tea, Hellmans mayonnaise, Flora margarine etc), cosmetics (Axe, Rexona, Dove, Timotei etc) as well as home care products (Domestos, Cif etc).
As each of these generates big revenues for the company, they can distinguish each of these groups of products as operating segments: “Food”, “Cosmetics”, “Home care products”. Probably they have also other ones.Another example would be a division based on the geographical areas. Let’s say your company is a retailer of some machinery. You sell this machinery both in your country and also abroad. If the sales abroad are a big part of your business, then you can distinguish these 2 operating segments.
Of course, according to the revised IFRS 8 the segments should be distinguished based on the way the management divides the business of the company into different segments which are then regularly analysed by the management.
I hope this helps.
Btw, This is not any advertisement of Unilever – it was just the first company that came into my mind as a good example. You can easily find hundreds of similar companies.
Ok, thank you Mike! Let’s just hope there will be no such question on the exam 🙂
Hello Arifarshad,
I am still confused about this. In this example profit is 1/4 of the selling price (Air made a profit of 1m on 4m), Cohort recorded the goods in the cost, ie. the selling price. So the unrealised profit should be 1/4 * 1,8 = 0,45.
What do you think?Ok, I checked this again in ias20 – the income-related grants are called so, because when you receive them, you recognize them in P&L (as the costs you covered with them are recognized in P&L), while the assets-related grants are recognized in balance sheet, because they concern assets. There are two ways of presenting the assets-related grants:
1) as deferred income – then you recognise the income at the same time, when you depreciate the asset which is granted
2) as deduction in the carrying value of the assetThe grant related to assets gives you an obligation to buy or build PPE for this money, eg. a company receives a grant to build a machinery park, so the grant covers the costs of building the machinery – the costs are capitalized on PPE, as in the case of regular machinery, bought/built from own money.
The second type of grant, as far as I understand it, allows to cover the operating costs, eg. a company receives a grant to hire 20 new employees and pay them remuneration for 1 year. Or a company receives a grant to organize a marketing campaign abroad etc. The specification of the costs that can be covered will be included in the agreement between the company the government. Usually there is a list of costs which can be qualified as covered from grant.R/E is retained earnings and includes just the profits from previous years and from current year.
Reserves is a much wider notion, which means everything that goes to equity, other than the share capital, ie R/E, revaluation reserves, fx exchange profit/loss, other components of equity etc.