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Dear Tutor,
I have a few questions in regards to the revision kit of BPP.
Q 105 Boo and Goose
BPP answer:
CSFP as at 31.12.20X8
Current assets
Inventory (500+120+80) 700
Trade receivables (650-100+40) 590My answer:
CSFP as at 31.12.20X8
Current assets
Inventory (500+120-20) 600
Trade receivables (650+40) 690Is the BPP’s answer correct?
Q 106 BPP’s answer $193,125 while my answer is $268,125. Workings for my answer:
FV of NCI at acqn 105,000 + NCI’s share of post acqn Retained Earnings 163,125 [30%×(750,000-450,000+250,000-6,250)]I don’t understand why BPP’s answer does not incorporate NCI’s share of fair value adjustment of Building at the date of acquisition.
Thank you in advance for your response.
Best Regards,
KevinFor Boo and Goose, you’ll need to tell me precisely the story behind the $100 inventory issue (I don’t have the same revision kit that you have!)
Similarly for question 106 but perhaps I can guess that one … does the question state that the subsidiary share price at date of acquisition is to be used for the calculation of the nci at date of acquisition?
In which case … use the share price and don’t concern yourself with fair value adjustments of buildings
OK?
I’m waiting to hear from you re Boo and Goose
Q 105 Boo and Goose
Boo acquired 80% of Goose’s equity shares for $300,000 on 1 January 20X8. At the date of acquisition Goose had retained earnings of $190,000. On 31 December 20X8 Boo despatched goods which cost $80,000 to Goose, at an invoiced cost of $100,000. Goose received the goods on 2 January 20X9 and recorded the transaction then. The two companies’ draft financial statements as at 31 December 20X8 are shown below.
Required
Prepare a draft consolidated statement of profit or loss and other comprehensive income and statement of financial position. It is the group policy to value the NCI at acquisition at fair value. The fair value of the NCI in Goose at the date of acquisition was $60,000.Q 106 Witch
Witch acquired 70% of the 200,000 equity shares of Wizard, its only subsidiary, on 1 April 20X8 when the retained earnings of Wizard were $450,000. The carrying amounts of Wizard’s net assets at the date of acquisition were equal to their fair values apart from a building which had a carrying amount of $600,000 and a fair value of $850,000. The remaining useful life of the building at the acquisition date was 40 years.
Witch measures NCI at fair value, based on share price. The market value of Wizard shares at the date of acquisition was $1.75.
At 31 March 20X9 the retained earnings of Wizard were $750,000. At what amount should the NCI appear in the CSFP of Witch at 31 March 20X9?Yes, I understand that the question states Parent measures NCI at fair value based on market value of subsidiary shares at the date of acquisition, but why is it no need to incorporate the fair value adjustment of Building at the date of acquisition while the post depreciation adjustment of Building is incorporated?
“…but why is it no need to incorporate the fair value adjustment of Building at the date of acquisition …”
Because the question specifically states that the nci is to be valued using the share price! It really cannot be any clearer than that! If a question tells you something (as it does in this case) it’s not up to you to change the question so when the question states that “Witch measures NCI at fair value, based on share price” then that’s how the nci shall be measured. Full stop!
With reference to Boo and Goose and the inventory in transit, neither entity has recorded that $100 inventory – it’s no longer in Boo’s possession as at the year end and it isn’t in Goose’s possession because Goose has not yet received it
But it’s nevertheless inventory belonging to the group
So accelerate the goods into the possession of the recipient (in this case, that’s Goose) and then make the adjustment to remove the pup by adding the $20 to Boo’s cost of sales
Is that better?
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