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Consolidation

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Consolidation

  • This topic has 7 replies, 2 voices, and was last updated 10 years ago by MikeLittle.
Viewing 8 posts - 1 through 8 (of 8 total)
  • Author
    Posts
  • June 19, 2015 at 3:30 pm #258074
    AC
    Member
    • Topics: 4
    • Replies: 4
    • ☆

    Hi

    Can anyone help me with the question below?

    B acquired 40% of C on Jan 2007 (retained earning 100k and share capital 100k). Later in Dec 2007, B further acquired 20% of C (retained earning 150k). A acquired 80% of B (retained earning 400k and share capital 100k) on May 2009, C’s retained earning is 300. In preparing the consolidation statements for A on 31 Dec 2010, how do i calculate goodwill? Do i calculate goodwill at the point when A acquired B May 2009 where the effective control in C is 48% and TNCI is 52%?

    Is there a need to show the working & answer for “B acquired 40% of C on Jan 2007 (retained earning 100k and share capital 100k). Later in Dec 2007, B further acquired 20% of C (retained earning 150k)” in preparing the consolidation statement for A on 31 Dec 2010? The step acquisition of C from 40% to 60% in B would required us to calculate the goodwill.

    Thank you.

    June 19, 2015 at 4:34 pm #258085
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    You only need to consider, for the consolidation of the A Group, the situation as at the date A acquired control of B

    June 20, 2015 at 12:34 am #258120
    AC
    Member
    • Topics: 4
    • Replies: 4
    • ☆

    Hi Mike

    Let’s say:

    B paid 80k to acquire 40% of C and another 40k to acquire 20% of C.
    A paid 500k to acquire B on May 2009

    goodwill calculation:

    A in B = 500k (COI) + 100k (NCI) – 100k (share captial) – 400k (retained earning) = 100k

    B in C = (80k + 40k) x 80% (COI) + (100k + 300k) x 52% – 100k (share capital) – 300k (retained earning) = -96

    Is my calculation okay? do i write off the negative goodwill?

    June 20, 2015 at 5:59 am #258127
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    With all these percentages and figures, it’s quite tricky to follow! The ultimate point is that when A acquired their interest in B in May 2009, they were acquiring the B group. There’s no direct investment in C by A

    So the goodwill calculation is cost of investment in B plus the nci in B at fair value compared with the fair value of the B group net assets excluding any goodwill that arose on B’s acquisition of C. That goodwill is omitted because it is not an identifiable asset of the B group so far as A is concerned

    By that omission, the fair value of the B group net assets is reduced thus increasing the goodwill arising on the acquisition of B by A

    I think that does it

    June 20, 2015 at 11:21 am #258172
    AC
    Member
    • Topics: 4
    • Replies: 4
    • ☆

    Hi Mike

    I dont quite get it. Can you please elaborate further?

    June 20, 2015 at 12:22 pm #258180
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Ok, calculate the consolidated retained earnings of the B group as at the date that A acquired shares in B

    Add on to that the B share capital and any other consolidated reserves in the B group together with any necessary fair value adjustments to the carrying value of the B group net assets

    Compare that total with the A cost of acquisition plus the fair value of the nci in B

    That will give you consolidated goodwill ready for when you are going to prepare the financial statements for the A group

    Better?

    June 20, 2015 at 12:38 pm #258181
    AC
    Member
    • Topics: 4
    • Replies: 4
    • ☆

    Hi Mike

    This is better.

    In this case, i dont need to calculate the goodwill for C?

    June 20, 2015 at 12:39 pm #258182
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    That’s what I’m saying!

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