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Hi Mr. Moffat,
Firstly thank you so much for your study resources they are invaluable!
My apologies if you have dealt with this in your lectures but i have re-watched them all and couldn’t see any mention of this variable. My question are in two parts as follows.
Could you please help me with the following query;
A company P acquired 60,000 $1 on the 1st June 20X7 of S. The Fair Market Value of the shares was $3.50 per share. P also paid $1.50 in cash for every one share purchased. No SOPL was included for P.
Non-controlling Interest was $180,000.
Q1 – P’s Share investment in S is 60,000 x 3.5 = 210000. Do you also add the amount purchased in cash to the Shares fair market value to make up the full investment amount for P in S in the SOFP? ( I hope this is clear!)
Part 2:
There is the SOFP for both P&S year ended 31st Dec 20X7Pre Acquisition Reatined Earnings 905,000
Retained Earnings were shown as below;
P S
1st Jan 20X7 2,150,000 1,060,000
31st Dec 20X7 2,300,000 1,160,000
4,450,000 2,220,000Q2 – How do find the non controlling interests S’s Retained Earnings with the information provided.
Q3 – How do you find the consolidated SOFP Retained Earnings with the information provided.
My main issue here is deciding what information is relevant.
Thank you so much for your help in advance.
Kind regards,
Ciara Smyth
1. Yes – the total cost of the investment is the cash plus the value of the shares. (You are correct in saying that I do not mention this in my lectures – this is because strictly it is not examinable until Paper F7 🙂 )
2. As at 31 December X7, the total retained earnings of S are 2,220,000 and therefore the non-controlling interests share of retained earnings is their % of this (you have not written what % is owned by P and therefore what % is owned by the NCI).
The consolidated retained earnings are all of P’s (4,450,000) plus their share of the post-acquisition retained earnings of S (2,220,000 – 905,000).
(This is all explained in my lectures 🙂 )Thank you so much for the above Mr. Moffat.
They did not give a % of the non-controlling and said that it was 180,000. So do you use get a percentage from the overall cost? by saying 180,000/Share market vale + cash purchase? The question just gave the date of acquisition.
I think i got confused as i have never seen Retained as an opening closing balance.
Again thanks so much
Ciara
There are two ways the question can tell you about the %’age.
Either you will be told the %’age directly, or you will be told how many shares there are in S and how many of them P bought (then you can calculate the %).
Here you know that P bought 60,000 shares, but you would also need to be told how many shares there are in total in S. If it is not in the question then there is a mistake in your book.
Where did you find the question? I assume it was in your Revision Kit – if you are using the current edition of the BPP Kit then tell me the number of the question and I will find it myself and check 🙂
This actually came from a paper i sat yesterday. I was due to be allocated extra time which had been agreed ahead of time due to ADHD and had allocated time to include an extra thirty mins with a ten min break on the hour. The time was not allocated to my exam so they have said I will have to resit the exam free of charge i got 44% with 15/20 questions still to be answered. You can imagine my frustration. At least now if this style of question comes up again I will be prepared.
I am giving the exam question from memory (so it might not be perfect) but i am 90% sure there was no mention of overall shares of S it really threw me as I was so used to following your very well laid out proforma of what will appear on each consolidated statement and the workings for SOFP – goodwill, Retained earnings, Non controlling interest and PURP SOPL – Adjustment for, PURP ect. I could only see the non-controlling interest amount.
It was the first time i had seen a question laid out as such. I have the Kaplan Kit and haven’t come across anything like that before. If you know of a question within Kaplan i would be very much appreciate if you could give me a page number to work through so I won’t be so perplexed when I sit it again. I mean I gave it a good go and sure i got some of it correct but I would like to get it all right. The consolidated long questions are a great way to increase your marks!
Kind regards,
Ciara Smyth
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