Chapter 9 : Disposal of a subsidiary (Bpp)

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January 23, 2022 at 6:25 pm #647347
maazeen
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Pelmer Co acquired 80 % of Symta Co’s 100,000 $1 shares on 1January 20X2 for $600,000 when the net assets of Symta Co were $410,000. In addition to its net assets, Symta Co had a brand name valued at $50,000 which was recognised on acquisition. It is group policy to measure noncontrolling interests at fair value at a cquisition. The fairvalue of the non-controlling interests in SymtaCo at acquisition was $150,000. No impairment has been necessary. On1June20X6, Pelmer Co disposed of its shareholding for $1,500,000. At that date, SymtaCo’s statement of financial position showed net assets with a carrying amount of $660,000. The value of the brand name which is not recognised in the individual financial statements of SymtaCo, has not changed since acquisition. Required
What is the group profit or loss on disposal of Symta Co to be shown in the consolidated accounts for the year ended 31December 20X6? -$610,000
-$800,000
-$808,000
-$858,000
The correct answer in bpp text is $808000. Could’nt understand how they got there and most of their workings looks wrong to me.
Kindly clarify this riddle for me. Thanks in advance
January 25, 2022 at 3:08 pm #647448
vikipulka
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You’re right they made a few mistakes (starting from Goodwill calculation, and even in a simple equation 660+50 instead of 700, they have 710.
January 25, 2022 at 3:32 pm #647450
vikipulka
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Per my understanding it should be like this:
Part 1.
Pelmer Co acquired 80%…. for $600,000 when the net assets of Symta Co were $410,000.
In addition to its net assets, Symta Co had a brand name valued at $50,000 which was recognised on acquisition.
The fair value of the non-controlling interests in Symta Co at acquisition was $150,000.

1. Goodwill calculation
FV of P’s investment 600 (as given)
FV of NCI at acq 150 (as given)
FV of sub’s net assets at acq (410) (as given)
FV adj (50) (as given)
_______________
Goodwill (total of the above) 290
January 25, 2022 at 3:33 pm #647451
vikipulka
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Part 2.
2. NCI at disposal
NCI at acq 150 (as given , see part 1)
NCI x post acq reserves 50 (=20%*(660-410) (net assets at disposal-net assets at acq)x %NCI share
Total: 200
January 25, 2022 at 3:35 pm #647453
vikipulka
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On 1 June 20X6, Pelmer Co disposed of its shareholding for $1,500,000. At that date, Symta Co’s statement of financial position showed net assets with a carrying amount of $660,000.
The value of the brand name…. has not changed since acquisition.

Gain in the consolidated FS of PL
Sale proceed 1,500
Less:
– Net assets disposed (710) (=660+50)
– Goodwill (290)
– Less: NCI at disposal 200 (should be +, because less x2)
Gain (total of the above) 700

Correct answer 700.
January 25, 2022 at 3:37 pm #647454
vikipulka
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Check Kaplan book (chapter 21) “Group disposals”
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