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hi Mike, i have been looking at the dec 2013 pass exam ques. polestar and southstar, my ques is why isnt the increase in fair value of the southstar asset at the date of acquistion not carried in the income statement as other comprehensive income and shared between parent and nci, but the decrease in the contingent consider was treat through the profit or loss?
The fair value adjustment is not post-acquisition, it’s as at the date of acquisition. The adjustment for the fair value is reflected within the calculation of working W2 Goodwill as affecting the fair value of assets at date of acquisition. There is an affect also on the depreciation charge post acquisition because the fair value adjustment needs to be depreciated over ten years. That “additional” depreciation is accounted for in working W3 Consolidated Retained Earnings
Re the contingent consideration, the movement from $1.8 to $1.5 IS post-acquisition. However, as at date of acquisition, the best estimate was $1.8 and that’s the figure we have to use in the goodwill calculation (W2)
A change in the estimate of the contingent consideration is NOT reflected in any re-calculation of goodwill. Instead, such a change will be reflected in the Income Statement and in working W3 Consolidated Retained Earnings
The same situation arose in the June 2010 question Picant
OK?
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