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Hi John,
I have two different questions for which I am not sure about the answer.
1. Really aquired 75% of ordinary share capital of Hard on 01.01.20×9, when Hard had losses of 112000 $. Also, Really aquired 30% of ordinary share capital of Work, when Work had retained earnings of 280000 $.
The summarised statement of financial position at 31.12.20×9, for retained earnings is: Really – 2464000 $ and Hard – 1204000 $. What if the consolidated amount for retained earnings?2. Entity A aquired 60% of issued shares of B by exchanging 3 shares in A for 2 shares aquired in B. B had issued at that date 100000 shares. At aquisition date the fair value of one share in A was 3.5 $ and the fair value of a share in B was 2 $. What was the fair value consideration paid by A to gain control of B?
For second problem I am not sure why, for the amount calculus, is taken into consideration the value of 3.5 $. -> 100000*60%*3/2*3.5. Why not the fair value of B share?
Thank you,
Camelia
Camelia
1. I can’t answer this without seeing the full question. The consolidated retained earnings are all of Really’s (2,464,000) plus 70% of Hard’s post-acquisition earnings (70% x (1,204,000 + 112,000)), plus 30% of Work’s post-acquisition earnings. You have not given enough information to be able to calculate the post-acquisition earnings of work.
(Work is an associate and therefore you cannot really be asked question in the exam that involve numbers for associates.)
2. They have taken the value of A’s shares because it is A’s shares that are being given and therefore the value of what is given is the amount paid.
(This cannot be asked in Paper F3. I have a feeling you have got if from Kaplan, but it should not be there (and I thought they had now removed it).Hi John,
yes, the questions are from Kaplan. They didn;t remove it.
Just one more question. Why the amount of 112000 is added back to profit if it is a loss?Thank you,
camelia
Because to go from -112000 up to zero needs them to make a profit of 112,000. Then to go higher and have retained earnings above zero, needs even more profit 🙂
I understand now. Thank you so much for your time and explanation.
You are a great teacher.
Camelia
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