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I know this almost certainly wrong but q.1 for the current asset inventory that had a fair value higher then cost I put that inventory is held at lower of cost and NRV so should be kept at cost but I’m guessing coz it was a business combination it should have gone to fair value coz that was in a way the cost of the parent? Hopefully the own figure rule will save me…
@omz86 said:
I see so we were only meant to equity account for the 30%?In part A ii) yes. In part B – acquisition acc for 48% of share (controlled entity hence a subsidiary). Step acquisition as someone mentioned here before.
@xanpech said:
I know this almost certainly wrong but q.1 for the current asset inventory that had a fair value higher then cost I put that inventory is held at lower of cost and NRV so should be kept at cost but I’m guessing coz it was a business combination it should have gone to fair value coz that was in a way the cost of the parent? Hopefully the own figure rule will save me…I said this too! That despite the change in FV, IAS 2 rules mean it should remain at cost
I said the same about the inventory part that should be kept at NRV.. So not sure. Will see
But at apparently it’s wrong. It should have been valued at Fair value at acquisition.. Never mind!
All net assets are valued at Fair value at acquisition. Was debating that in the exam but left it at NRVDo you remember your working for investment in associate?
Did you use the FV consideration for the original acquisiton and how did you calculate the associates post acq reserves?I did the same!!! Obviously it’s an Asset.. Aahhr!! Sometimes you have no time to think straight!!!
I got negative goodwill too. Although I don’t think the calculation was correct as I didn’t do anything with the deferred. I got a bit confused. Lol
What should we have done with the deferred tax? Does anyone know?
Well, I got in Q1 actually a goodwill. I calculated fair value of non-current assets (adjusted for 10m related to land and 5 related to customer database). Then adjusted current assets to fair value as well. When it’s a business combination we always use fair value (not IAS 2 and NRV vs cost). Having that calculated I also recalculated deferred tax liability. It needs to be adjusted for all items you bring to fair value. It was therefore higher which at the end caused a goodwill (not bargain purchase) which is quite logical as negative goodwill happens rarely. I’m a little bit surprised lot of people have that outcome but maybe I’m wrong… will see in few weeks 🙂
I think i increased my deferred tax figure based on the fv movements at year end x tax rate of 20% i.e. additional asset = additional tax liability.
That was one tough exam though – everything felt very answerable once the scenario had been digested but wow, time pressured beyond belief! Missed the final 6 marks in Q4 which i’m gutted about…
Couldn’t agree more. I felt like I have all the answers needed but I spent a lot of time to write Q1 & Q2. Then rushed through Q3 and missed last point of Q4 due to time…
Here are my thoughts:
Q1 – in the first part equity accounting, 30% as it was on 31 March and another purchase was on 1 Apr. Key part was land revaluation which suggest this part should go through OCI (as well as deferred tax related to it). Second part all about calculating goodwill and fair value. As mentioned before I made also adjustment for DTL. I made some comments about proportion NCI and what that means for goodwill in case of impairment.
Q2 – relatively easy, all based on ACCA code of ethics and illegal inside trading which is prohibited almost in all jurisdiction.
Q3 – I started with Conceptual Framework definitions and then for each film category I put different standard (IAS 2 Inventory, IAS 38 Intangible Assets and IFRS 15. Then I arrived at conclusion of joint venture. There was also question: debt vs equity for those 10m invested by the other company. I decided it is equity based on exposure draft (it’s not independent of company economic resources).
Q4 – little time, I stated definition of business then described how it should be accounted under both approaches. Asset should include cost (29m) and direct acquisition cost (1m) as well. Then I allocated that proportionally and calculated depreciation based on that. For business combination goodwill needs to be calculated including additional part of consideration. Then impairment will impact earnings. Direct acquistion costs are not part of consideration and should be expensed as incurred. Unfortunately I didn’t finish goodwill calculation and last point of the question due to lack of time….Hope it will be enough to pass.
Q1 I got positive goodwill but i didn’t FV the inventories, so i reckon that’s why i got positive. But if you left it out and carried it forward, so that mean you would get a penalty just for those mark(s) but no more penalties if you carry it forward?
Also, it appeared a joint venture just from the seperate entity however, on the next question it mentioned something about the £10m share issue for the 51% being included as debt rather than NCI? I wonder if it’s something to do with the other entity having a contract to makes them having to get a % of the gross receipts might be why it’s being designated as debt as they get contractual cash flows.
And very time pressurised, didn’t manage to finish the exam ;(
I got negative goodwill. My concern how NCI was calculated? On 40% or 52%(net assets was 348 m)
Q1: I calculated all the fair values and adjusted in Goodwill calculation.Deferred tax on fair value adjustment(except customer database for me it was contingent asset). Concern was which percentage to apply for NCI calculation 40 or 52%? I got negative goodwill
Q2: It was straight forward
Q3: The first film was Inventory, the second film was Intangible asset and the third struggled and wrote as agent fee under IFRS 15
Q4:I wrote that it is Joint Venture between parties. Calculated goodwill bu I think wrongly took fair value of contingent consideration at 6,5 m but I thhink ot should be 5m. Direct costs 1m to PL. 20 m apportined between assets based on percentages and adjusted in PL and calucaled for depreciation in KPI measures.
Very very strange exam..
Question 1 was not so bad until I had to calculate NCI at 52%. It felt very awkward!! I hope I wasn’t the only one who used 52% even if I’ve NEVER seen this before..
Everyone, something interesting I found – quite relates to question 3
https://www.pwc.com/kr/ko/industries/enm/pwc_miag_issue10_film-cost-capitalisation.pdf@js12 said:
Q1 I got positive goodwill but i didn’t FV the inventories, so i reckon that’s why i got positive. But if you left it out and carried it forward, so that mean you would get a penalty just for those mark(s) but no more penalties if you carry it forward?Also, it appeared a joint venture just from the seperate entity however, on the next question it mentioned something about the £10m share issue for the 51% being included as debt rather than NCI? I wonder if it’s something to do with the other entity having a contract to makes them having to get a % of the gross receipts might be why it’s being designated as debt as they get contractual cash flows.
And very time pressurised, didn’t manage to finish the exam ;(
I also got positive goodwill after not fair valuing the inventories. I think the own figure rule will mean we will still get marks for the goodwill calculation. I also didn’t finish, I ran out of time before 4C, I wonder how many ppl actually did 4c? lol.
Does anyone know for the deferred tax increase on the fv adjustment if we were meant to use the current tax? I have a bad feeling I used the deferred tax rate. But then I can’t remember, was the deferred tax rate 30 percent and current was 20 percent?
Am also wondering which the principal and which was the agent…
@xanpech said:
I also got positive goodwill after not fair valuing the inventories. I think the own figure rule will mean we will still get marks for the goodwill calculation. I also didn’t finish, I ran out of time before 4C, I wonder how many ppl actually did 4c? lol.Fingers Crossed
Q1- Step-acquisition
It is first an associate recognised at cost in 2002 at 100 mil
We add back the share of post-acq profit, this was possible as the question gave the NA at acq and asked to calculate the NA in 2006 at second aqui.We also add the secon aqui at 66.NA 2006: 100 + 27 (adj for step-aquisition) + FV of the contingent consideration + NCI at proportionate share – NA
For the NA, the question gives the CV at 348, if I remember correctly, including also the deferred tax. The only adjustment needed was for land of 10 and also current assets of 47 both not depreciable. On this 57, there is a deferred tax of 57*20% = 11.4
So I came to a NA of 348+57-11.4 = 393.6The last part about the digital list, I did not include, there was an article about the digitale accounting in the ACCA website.
The weird part in this question was the control at 48%, but as substance has priority over form, the actual value is 60% and 40%, I also used the 40% to calculate NCI. I also got a bargain purchase.I think the exam was average, let’s see in a few weeks
Why would you use 40% if NCI were holding 52%? Share and control are two separate things. The company can have less than 50% but still having control. That was the case here. At this point option wasn’t exercised therefore NCI was 52%.
From what I can remember….
Q1. Spoke about definition of an associate, recognition of associateAii) About the equity method and how should be accounted
Aiii) The classification of an associate(didn’t have a clue)
Bi) to work out the financial and non financial assets and what can be recognised with reference to rev reserve
Iii) calculate Gw/bargain purchase(gain)
2). Ethics-related parties, single segments, ias 8 accounting policy, ias 16
B) what is the validity of the ships(not sure conceptual framework)
3) contracts
Ii) reference to ias 38 intangible asset
Iii) to do with inputs and outputs business combination
B) to recognise why it is debt and not a non controlling interest
4) Revenue-principal and agent
Ii) question on KPI with reverence to business combination and asset acquisition of figures shown in depreciation, amortisation, impairment, therefore ratios
B) what impact has on investors
Asset acq
Business combination@mast said:
Why would you use 40% if NCI were holding 52%? Share and control are two separate things. The company can have less than 50% but still having control. That was the case here. At this point option wasn’t exercised therefore NCI was 52%.This is what I thought? Also, I’m sure it said that they would make an additional payment if the option was exercised, but didn’t disclose the figure, so the consideration transferred (18%) + FV of original holding (30%) meant that NCI had to be 52%? It felt very strange, but I thought that by not doing 52% NCI I would be comparing 88% with 100% of net assets, which is wrong?
Anyway I might be wrong, and there were plenty of other bigger areas in the paper so not the end of the world if so!
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