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west co. acquired 90 per cent of the 100 000 share in East co. on 1 January 20X7 for $480,000 when the reserves of that company amounted to $320,000. On that date the fair value of the non-controlling interest was valued at $45,000. Included in East Co’s statement of financial position was land with a book value of $60,000. The fair value was $30,000 higher than this. West Co. group measures the non-controlling interest at fair value. What goodwill arose on the non-controlling interest of East Co?
The working as per below:
Consideration transfer-$480,000+ FV of NCI $45,000-FV of net asset(100K+30K+320K) $450,000 = $75,000.Sir, can u explain how to get the 100K which was included in calculation FV of net asset.
another one question is :
Ed Co. has owned 100 per cent of the shares in Clem Co. for five years. These were bought for $450,000 when the net assets of clem co. were $415,000. In the year of acquisitions, Clem Co. was impaired by $5000 due to drop in profitability. Clem CO. has again suffered a loss of profits in the year ended 31 December 20X9, and accordingly goodwill is to be impaired by 20 per cent of book value. Extracts from the two companies’ statements of profit or loss are as follow:
Ed CO. Clem Co.
Cost of sales 320,000 126,000
administrative expenses. 100,000. 36,000What are the amounts to be reported for group cost of sales and administrative expenses ?
the answer is COGS = $446,000, Administrative expenses = $142,000
The working as per below :
ED CO. – $100 + Clem co . – $36 + impairment (450K-415K-%K) – $6K = $142K
Understand that goodwill impairment is charge to administrative expenses. But I dun understand the working for impairment. The question mentioned goodwill is to be impaired by 20 per cent of book value, but why we need to use the consideration transfer minus net asset minus and minus impaired $5K?
Sir,
The question is from CPA Australia module (Financial accounting & reporting)
This is a forum to support candidates preparing for ACCA Advanced Audit and Assurance using OpenTuition resources and with technical questions about ACCA resources.
For your 1st Q I suggest you read Section 4 of Chapter 23 in our FR notes https://opentuition.com/acca/fr/ – the $100k is 100% equity shares (see W2).
I don’t have time to work through the working – presumably this is a calculation of the goodwill that is impaired by 20%.
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