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Question) On 1 January 20×5, P acquired 80% of S’s $2 million share capital. At this date, S had retained earnings of $4 million and a revaluation surplus of $2 million. P had retained earnings of $10 million and a revaluation suplus of $5million.
The fair value of S’s net assets at acquisition were equal to their carrying amounts with the exception of S’s property which had a fair value of $ 800 000 in excess of its carrying amount and a remaining life of 20 years.
At 31 december 20×5, P and S both revalued their assets. P’s assets increased by a further $2million while S’s increased by $500 000. At this date, P’s retained earnings were $11 million and S’s were $3.5 million.
Hi sir for the above question, the revaluation surplus should not be included within the fair value of net assets table because the revaluation took place after the acquisition right ?
It’s unclear from your post whether the fair value increase was recorded as at date of acquisition or whether it was left unrecorded
If it has been recorded (Dr S TNCA 800,000, Cr Revaluation Reserve 800,000) then this subsequent valuation as at the year end needs to be deducted from that Revaluation Reserve post-acquisition figure of $800,000
If the fair value adjustment has not been made as at date of acquisition, the $500,000 post-acquisition movement should be reflected in the same way that post-acquisition retained earnings are reflected – 80% to the consolidation and 20% to the nci
Basically I’m struggling because it’s not clear to me whether TNCA has increased by 800,000 + 500,000 or is it merely a net increase of 800,000 – 300,000 (to get back to the year end 500,000)
What’s the name of the question?
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