[wyingjie]

Mike, thank you very much 🙂

[wyingjie]

This is a MCQ in the BPP revision kit. The answer is a contract asset of $271000 in the SOFP. I presume this is the amount due from the customer.

Contract cost to date $740000
Add: Profit recognised $231000
Selling Price $971000
Amount billed $700000
Contract Asset $271000

I don’t have the answer for the journal entries, hence I wanted to learn how the transactions will be treated to balance the books if this type of question were to appear in a question on published financial statements.

In trying to understand your entries, I’m trying to derive your answers as below:

$700,000 Receivable ($700,000 has been billed to the customer but not yet paid.)

$530,000 Current Asset (How to get this?)

$980,000 contract revenue (35% of contract revenue)

$490,000 costs recognised (35% of cost to complete)

[wyingjie]

Hi Mike, thank you for the clarifications 🙂

I copied Kaplan’s answer word for word and the F7 lecturer indeed put “fair valued of net assets at date of acquisition” instead of “…..at date of consolidation” for all the workings for the other questions. I guessed we were too confused on how to ask the lecturer.

[wyingjie]

Will ACCA award marks for this backward calculations? This was Kaplan’s F7 method. However, in F3, Kaplan added NCI’s Share of Post-Acquisition Reserves.

[wyingjie]

I’m read it correctly. The NCI answer is still correct.

Workings from Kaplan’s lecture notes are as follow (Values in $’000):

To find Goodwill –

Parent:
Cost of Investment $12,800
Less: Fair Value of Net Assets of Subsidiary at date of acquisition $5,600 ($7000 x 80%)
Parent’s Share of Goodwill: $7,200

NCI:
Cost of Investment $3,500 ($5000 x 20% x $3.50)
Less: Fair Value of Net Assets of Subsidiary at date of acquisition $1,400 ($7000 x 20%)
NCI’s Share of Goodwill: $2,100

Total Goodwill: $9,300 (Consol SFP)

NCI Working:
Fair Value of NCI at acquisition date $1,590 ($7,950 x 20%)
Add: NCI’s Share of Goodwill $2,100
NCI in Consol SFP is $3,690

[wyingjie]

Hi Mike,

Could you refer to F7 past exam on Dec 2010 Q1 (Premier)?

In Kaplan lecturer’s workings, NCI’s share of goodwill was added, i.e. $2,100,000.

Fair Value of NCI at acquisition date $1,590,000
Add: NCI’s Share of Goodwill $2,100,000
Hence, NCI in consol SFP is $3,690,000

However, Post-acqusition reserves after fair value adjustments was $950,000.

Why was NCI’s Share of Goodwill added instead of NCI’s Share of Post-acquisition Reserves in this case? Did I miss anything?

[wyingjie]

Hi John,

Thank you. I found this question in the Kaplan F3 lecture notes for Dec 2014/Jun 2015, hence I thought this was part of F3 syllabus. I will move this to F7 forum.

[wyingjie]

Hi John,

Sorry, I didn’t state clearly. I put in my workings here for tutors’ advice. I am taking F7 now but still working on my fundamentals.

[wyingjie]

Insurance Premium from 1 Jul 14 to 30 Jun 15 = $13200 or $1100 per month

Insurance Premium from 1 Jul 13 to 30 Jun 14 (or previous year) = $13200/1.10 = $12000 or $1000 per month

Accounting period: 1 Apr 14 to 31 Mar 2015

Paid $13200 for period 1 Jul 14 to 30 Jun 15

Accrual of $3000 ($1000 x 3 months) for period 1 Apr 14 to 30 Jun 14 as question did not state it was paid.

Prepayment of $3300 ($1100 x 3 months) for period 1 Apr 15 to 30 Jun 15

Journal Entries:
Dr Insurance Premium $13200 (SPL)
Cr Cash $13200 (SFP)

Dr Insurance Premium $3000 (SPL)
Cr Insurance Premium Accrual $3000 (SFP)

Dr Prepaid Insurance Premium $3300 (SFP)
Cr Insurance Premium $3300 (SPL)

Insurance Premium A/C
——————————————————————————————————-
Cash $13200 | SPL $12900 (charged)
Accrual Insurance Premium $3000 | Prepaid Insurance Premium $3300
|
|
$16200 | $16200

[Author]

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