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Dear Sir/Madam,
I cannot understand the workings laid out in the solution to the following activity. How did they arrive to the $660 part of the workings for net assets and $200 for NCI?
Pelmer Co acquired 80% of Symta Co’s 100,000 $1 shares on 1 Jan 20X2 for $600,000 when the reserves of Symta were $410,000. Symta had a brand name valued at $50,000 which was recognised on acquisition. The FV of the NCI at acquisition was $150,000. On 01 Jun 20X6 Pelmer disposed of its shareholding for $1,500,000. At that date, Symta’s reserves were $710,000 and it had net assets with a carrying amount of $650,000. The value of the brand name has not changed since acquisition.
Solution:
Consideration transferred 1,500,000
Less
share of consolidated
amount at date control lost:
Net assets (100+660+50) 810
Goodwill 190
NIC at date control lost 200Gain 700
Hi,
I’m not 100% convinced by the answer. The fact that the net assets at disposal of 650,000 are lower than the reserves doesn’t make sense to me, unless I’m missing something.
Net assets = 100 (equity shares at par) + 660 (reserves at disposal presumably?!?!?) + 50 (brand value) but the reserves per the question at disposal are 710, so I’m not sure what they’re doing.
Personally I think it should be the net assets of 650 + 50 (brand value) = 700 or 710 (reserves) + 100 (equity shares at par) = 810 (which is their figure but it doesn’t tie into the 650 figure given).
NCI = 150 (NCI at acquisition) + 50 (20% x post acquisition movement = 710 – 410 = 300) but for this to work it should be 250 and it isn’t.
Personally, I’d not worry about the answer as long as you understand the principles.
Thanks
Dear Sir
Many thanks for your reply.
I got this from the BPP Workbook. It looks like they were meant to write 650 instead of 660 so it could be a typo?
May I also ask, why do they deduct NCI? wouldn’t that portion be already deducted when you deduct the net assets of the subsidiary at disposal? does it have to do with the value of NCI being measured at FV instead at the proportionate share of the acquiree’s net assets?
Best regards,
Sara
Hi,
It could definitely be a typo.
The NCI is added and not deducted in the calculation, it just looks like they’ve deducted it in the format of the answer given. As a short cut (not recommended) then you could deduct P’s% of S’s N.A. disposed of, without adding the NCI, and this wold give you the same correct answer.
Thanks
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