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Dear Mike,
In W-3 Retained earnings, where we calculated pre-acquistion profits. Why did we add F.V adjustment figure of 12,000 in pre acq profits calculation? Why isn’t pre-acq profit equal to 74,000 what is the logic of adding F.V adj 12,000 in pre-acq profits. (in lecture its at 34:22 point of time).
Hi Marya
Thank you for posting on this forum 🙂
The fair value adjustment to the inventory was as at date of acquisition. If Danute had valued inventory correctly at that date, her profits for the period up to date of acquisition would have been 12,000 higher because her cost of sales would have reduced by the amount of the increase in her inventory
And, I suppose, that explains why we need to add that $12,000 to her pre-acquisition profits
Do you need more by way of further explanation? If you do, no problem. Just post again
thank you sooo much for quick reply..you are simply awesome.
I got this point. Thanks alot!
But what if this increase in F.V. related to some plant or machinery, would we had done the same adjustment in pre acq profits or not?No. The fair value adjustment would be done as “normal” ie include it within working W2 goodwill calculation and reflect the increased value of the asset on the consolidated statement of financial position (beware the additional depreciation on the revaluation increase!)
The reason that it affects us in Ausra and Danute is because it has a dual effect – it not only increases the profit for the pre-acquisition period, it also reduces the profit for the post-acquisition period
A fair value adjustment on an asset has no affect on the Statement of Profit or Loss as at the date of acquisition. The only affect is the depreciation and, even then, the affect is in the consolidated tatements and not in the individual company records
Ok?
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Dear Mike,
Just started prep for P2 🙂 Same example (Ch 1, Eg. 1) but different question:
is it the correct way to split g/w impairment by simply multiplying 12500 by 75% and 25%?
In my opinion, NCI goodwill share is Fair value of SNA @DOA = 146 000 x 25% – 44 000 = 7500. And therefore 25% impairment is 1875. Similarly H’s share of goodwill is 146000 x 75% – (196000 -44000) = 42500. And H’s g/w impairment share is 42500×25% = 10625 ?Kind regards,
VItalijusHi Vitalijus, how are you doing? Snow gone yet?
You’re wrong about the split of the goodwill impairment. IFRS3 tells us to split any goodwill impairment (where nci is valued on a full fair value basis) in the proportions of the respective shareholdings (here it’s 75% / 25%)
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Thank you, I am fine.
Yep, that was my bad. You have noted that very clearly in Chapter 4 (or was it Ch.3?).
My advice is, for those like me who did not read IFRS 3, I suggest to have that already noted in example 1 in Chapter 1.
Looking forward to see you any time soon.
KR,
VitalijusYou’re welcome. I wish I could say that I was missing Lt but, other than the lovely people, there’s not much else to miss!
Keep in touch
Mike
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Well of course there is! Though i like you sense of humour.
Mike, one more from Chapter 1:
in part 2 in W3 proforma you have put FV adjustment in sub. “1”, and then depreciation charge for that FV adjustment.
However, as I practiced in BPP question 2-5 (book 1 sep 2014- 31 aug 2015), alhtough each example had FV adj at DOA to land or building there was not a single case when I needed to put that FV adjustment in RE calculation. I have only accounted for depreciatio charge.
And it look perfectly logical: if that would not be a FV adj to land, that would be part of Goodwill, which need not to be accounted in RE.
Was that a typo in your lecture? (Ch 1, part2?)
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Stupid me: you substract pre acq RE with FV later on…nevermind.
Just glad that you saw it. The BIG boys in the tuition market (BPP and Kaplan) both do it the way you point out.
I just find it safer to do it my way. Pre-acquisition profits becomes a straight lift from working W2.
“Their” way is perfectly acceptable – get happy with one way or the other but don’t mix the two!
Good luck next week (if I don’t hear from you before)
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