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Hello sir,
My performance in the last exam would be much better had the consolidation question been a SOFP one. But how unlucky I was, it was SOCI one with mid-year acquisition.
How do we calculate NCI’s share in SOCI actually ? I think it is the most complex part in consolidation at F7 level.
I know it is NCI’s share of the sub’s profit after tax
But life is not that easy. If we have additional depreciation due to fair value adjustments, intra-group interest expense (parent lends to sub), or a provision for an onerous contract of sub (like Q3 in the March exam a few days ago, where the contract is an operating lease for 5 year, provision has not been recorded by sub), I think we have to make some adjustments to sub’s profit after tax. And these adjustments are what make me confused !
And these adjustments also affect the apportionment of pre and post-acquisition of sub’s profit (to calculate goodwill), in this case the profit actually does not accrue evenly thoughout the year due to adjustments we need to make.
No, the pre-adjustment profit normally DOES accrue evenly
The adjustments that you mention will all be made to the post acquisition split of the unadjusted profits
The nci share of the subsidiary’s profits is as per the mantra!
They want ……..
their share of
this year’s
subsidiary
time apportioned
adjusted
profit after taxSo, time apportion the profits, then adjust then calculate the nci share
But I wouldn’t worry unduly about it for two (or even three) reasons
1. There’s nothing you can do about it now
2. It’s probably only one (maybe two) marks at risk because you’ll have got most of the calculation correct, and
3. So long as you can sort it out in your head before P2 there’s no worries 🙂Yes, most of the time pre-adjustment profit does accrue evenly but in tricky cases such as in Question 1 Pandar (Dec 2009 exam, please check it), there is finance costs of $3000 in sub’s SOCI and the date of acquisition is at mid-year but pre-acquisition finance costs is not $1500 but, after accounting for intra-group interest expense, is actually $1000 with $2000 post-acquisition.
Actually, I think this part requires careful investigation of every bit of information in the question and there is no certain formula or tip for every question. Each has its own tricky part. Important questions you need to ask yourself are : What adjustments need to be made ? Does it affect pre-acq or post-acq or both ?
In the exam just now, I was unsure about what needed to be adjusted and what did not and I just left it there and adjusted nothing, just taking the figure of NCI’s share of sub’s profit after tax for profit attributable to NCI. I think I lost about 5 mark for it.
Yes nothing I can do about it now, just feeling that I should have practiced more on consol SOCI.
It’s improbable that five potential marks lost is going to cost you success in the F7 exam! There’s still 95 other marks to chase after.
So, if you have failed, please don’t blame a tricky profit allocation!
You mention practicing more on consolidations. If you had practiced more on everything, we wouldn’t be having this beat-yourself-up session!
The moral? When you know that you’re facing a professional exam, make sure that you are thoroughly prepared!
Yes you’re right ! My fault…just thought that the examiner would not be so cruel that they set their questions right on this part
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