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Witch acquired 70% of Wizard on 1st April 2008
Retained earning at 1 April 2008 is $450,000
Retained earning at 31 March 2009 is $750,000
Carrying amount 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. Remaining useful life of the building at the acquisition date was 40 years.Witch measures non-controlling interest at fair value, based on share price. Market value of shares at acquisition date was $1.75.
Calculate non-controlling interest value at 31 March 2009.
I am not being able to understand the calculation of the answer of this question.
1. Why do we not take the retained earnings at date of acquisition when calculating the net assets of Witch at the date of acquisition?
2. Since building is valued at carrying amount in the net assets, why are we depreciating the fair value adjustment in the calculation of non-controlling interest value. We did not even include the fair value adjustment when calculated the net assets of Wizard?Hi,
Nci ( 30% of share * 1.75)
sna@doa
plus retained earning =450000
(-) fv adjustment (850-600)/40I think this is how it is generally done to adjust the values to nci share.
I do the calculation as the lecture format. in this question’s answer, share of subsidiary post acq retained (revaluation part) is not calculated as (850,000-600,000)-((850,000-600,000)/40)=243,750. Why?
This is question no. 92 (page 28) of BPP revision kit.
busybeestudying – please restrict your input on this page to questions of your own. This page has the title “Ask ACCA Tutor” and, so far as I am aware, you have not yet reached that status
ACCA student – I cannot give you a full answer because you have failed to give me the details of Wizard’s share capital and share premium (if any)
The value of the nci at 31 March, 2009 should be:
number of shares held by nci x $1.75 +
30% x ($750,000 – $450,000 – $6,250) =
number of shares held by nci x $1.75 +
30% x $293,750 = $88,125
OK?
sorry.. it was 70% of 200,000 shares of Wizard.
I understood how you calculated, but my question is why is it only the depreciation amount ($6,250). In example 11 of chapter 7 (Fair value measurement) in your notes you have taken revaluation amount less depreciation of the revaluation amount, not just the depreciation of the revaluation amount.
That’s just the way I do it
When preparing working W2 Goodwill, I list out the relevant component elements of shareholders’ funds and then the fair value adjustments
When it comes to working W3 Consolidated Retained Earnings and I need to find the retained earnings TODAY and deduct retained earnings from date of acquisition, I include in the TODAY section the fair value adjustment less post-acquisition depreciation
But I also include in the deducted retained earnings figure as at date of acquisition the fair value adjustment
Can you see that the BPPs and Kaplans of this world simply omit the fair value adjustment from the today retained earnings calculation and from the date of acquisition section
They bring in only the post-acquisition movement ie the depreciation
The revaluation was $250,000 and related depreciation was $6,250
$250,000 goes into Goodwill working and into working W3 today section AND date of acquisition section
The related depreciation goes into only the today section
The big boys simply miss it off both sections in working W3 and include only the post-acquisition movement
OK?
But will it not give a different figure for consolidated retained earnings and goodwill if I use the other method?
How can it?
My way I include the fair value adjustment at the top and bottom of working W3
Their way they miss off the fair value adjustment at the top and bottom of working W3
How can it make a difference?
No there won’t be any difference. I was taking the same pre acq retained earnings for both method which i understand now. Thank you for the time sir. 🙂
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