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Kaplan F7 exam kit question no 373
The question states
Also at the date of acquisition Sander had intangible asset of 500000 for software in SFP.
Picant’s directors believe that software has no recoverable value and wrote it off shortly after acquisition.
Why is the 500k added back in the post acquisition column?
WN2 Net assets of Sander
——————————————— At acquisition—————- At reporting—–Post acquisition
Share capital —————————— 8000————- 8000
Retained earning———————– 16500————- 17500———————1000
Fair value adjustment ——————– 2000————2000
Software writen off————————— -500—————0————————-500
Additional depreciation———————————————- (-100)———– (-100)
The software was written off, and so the net assets at acquisition have been reduced by 500. The software is then not in the net assets calculation at the reporting date, so the movement is from -500 to nil, which is an increase of 500 and hence the 500 being added back in the post-acquisition column.
Personally, I’d just look at the total of each of the two columns, and use the overall movement here as opposed to looking at it on a line-by-line basis.