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Example 10 Robertas and ingrida
chapter 7 topic
“mid year acquisitions example”
When you were drafting consolidated statement of financial positionQ1) Why you didn’t write any value under share premium?
Q2) why negative goodwill of $6000 was added to (working 3) though we made profit for the year 2009, it should have been deducted why it is been added?
Share premium arises on the issue of shares
Has the subsidiary issued any shares post acquisition?
Negative goodwill is added to reserves at the earliest opportunity – in this case it’s the year end financial statements that we are asked to prepare. This is not an impairment of goodwill – that only happens when goodwill is positive
Effectively we have made a bargain purchase – a “profit” on the acquisition of Ingrid
Better?
Chapter 8 “TRADING TRANSACTION”
Example 1
Working as per the notes given below example 1
Note
1) there was cash in transit of $30000 from Dovile to jurate at the year end.My working:
In accounts of jurate
DR Cash $30000
Cr receivables $30000On the other hand
In accounts of Dovile
Dr accounts payable $30000
Cr cash $30000Note ( 2)
Goods despatched by jurate to Dovile before the year end with the related invoices to the value of $10000 were not received by Dovile until 4th January 2010. The orginal cost of the goods was $10000.In accounts of jurate
Dr Receivable $10000
Cr inventory $10000On the other hand
In accounts of Dovile
Dr inventory $30000
Cr payables $30000My question is
Q1) In note 1 adjustments
why we didn’t adjust the affect to the Dovile’s accounts.Q2) IN note 2 adjustments
Why we didn’t adjust the affect to the jurate’s accounts.1) there was cash in transit of $30000 from Dovile to jurate at the year end.
If Dovile has sent it, then Dovile must have recorded the payment
Similarly, if Jurate has despatched the goods, then Jurate must have recorded the transaction (in Receivables and REVENUE – not in inventory)
Example 2 chapter 8
Petras and signe
In that question
working 3
Consolidated retained earnings
Pup is deducted from per question’s retained earnings if the example would have been about a sale, outside the group then, how we would treat unrealized profit.
Secondly, why we didn’t reduce inventory by $48000, though, we should have recorded at cost
Sir I am getting confused“if the example would have been about a sale, outside the group then, how we would treat unrealized profit.”
Is that a silly question?
If it’s a sale outside the group, the profit IS realised!
“why we didn’t reduce inventory by $48000, though, we should have recorded at cost”
Why would we eliminate the inventory?
Chapter 8
Example 2 petras and signe
Note # 2
I don’t know whether my question is silly or not, but it just clicked into my head.
why we didnt make any change to receivables,Though, receivables increased by $60,000.Before I answer, may I ask you to check the line of type at the very end of the question … underneath the line that says “Total equity and liabilities 810 300”
“Now cancel 60000 receivable from dovile against 60000 payable to jurate”
Ohhhh you mean $60000 receivable from signe has been cancelled against $60000 payables to petras
Am I correct?Yes – that was the point of that line! The $60,000 included within Receivables should now be cancelled against the $60,000 included within Payables
OK?
Witch acquired 70% of the 200,000 equity shares of wizard, it’s only subsidary, on 1 April 20×8 when the retained earnings of wizard were $450,000. The carrying amounts of wizard’s net assets at the date of acquisition were equal to their fair values apart from a building which had a carrying amount of $600000 and a fair value of $850,000. The remaining useful life of the building at the acquisition date was 40 years.
Witch measures non controlling interest at fair value based on share price. The market value of wizard shares at the date of acquisition was $1.75.
At 31 March 20×9 the retained earnings of wizard were $750000. At what amount should the non controlling interest appear in the consolidated statement of financial position of witch at 31 March 20×9?
Can you please solve this question as my answer is wrongShow me your answer and I’ll tell you where you’ve gone wrong
However … did you follow the illustration on page 53 in the course notes to show the value of the nci as at date of acquisition?
And did you understand the basis of the calculation of the nci for the statement of financial position (page 36, working 4)?
Tell me your answer and I’ll tell you what you have done that is incorrect
NCI= 200,000 shares *30% × 1.75 =$105,000
W3
Consolidated retained earnings
Wizard
Per question $750000
Fair value $585000 (600000/40yrs
= $15000 -600000)
—————–
$1335000
Pre acquisition ($450,000)
Fair value ($600,000)
——————
Post acquisition $285000
30%
W4
NCI (30%)Value of NCI $105000
+
Fair value of post retained earnings $85500Therefore value of NCI = 105000 + 85500 =$190500
I agree $105,000
I calculate post acquisition as being ($750,000 – $ 6,250) – $450,000 = $293,750 and 30% of that is $88,125
So total nci is $193,125
Is that correct?
$6,250 is 1/40 of the fair value difference when compared with carrying value (1/40 x ($850,000 – $600,000)) = 1/40 x $250,000 = $6,250
Better?
On 1 June 20×1 premier acquired 80% of the equity share capital of Sandford. At the date of acquisition the fair values of Sandford’s net assets were equal to their carrying amounts with the exception of its property. This had a fair value of $1.2 million below its carrying amount. The property had a remaining useful life of eight years.
What effect will any adjustment required in respect of the property have on group retained earnings at 30 September 20×1?
$( ) increase/ decreaseMy working
(W3) consolidated retained earningsPer question $1150000 (1200000/8yrs ×4/12) = $50000-1200000 = $1150000.
Pre acquistion ( $1200000)
———————
Post acquisition $50,000
Therefore increase by $50,000But real answer is $40,000
Q2) on 1 August 20×7 patronic purchased 18 million of the 24 million $1 equity shares of sardonic. The acquisition was through a share exchange of two shares in patronic for every three shares in sardonic. The market price of a share in patronic at 1.08.20×7 was $5.75. Patronic will also pay in cash on 31 July 20×9 (two years after acquisition) $2.42 per acquired share of sardonic. Patronic’s cost of capital is 10% per annum.
What is the amount of the consideration attributable to patronic for the acquisition of sardonic?My answer
18m *2/3 = 12000000
Share capital(12000000*1) $12000000
Share premium ($1-$5.75)* 12000000
= $57000000
Present value = $50400000
12000000*1/1.10 =10909091
12000000*1/1.10^2 =9917355
—————
20826446 *$2.42
= $50400000
Total answer is share capital + share premium+ present value =$ 119400000
But correct answer is $105M@unaiza said:
On 1 June 20×1 premier acquired 80% of the equity share capital of Sandford. At the date of acquisition the fair values of Sandford’s net assets were equal to their carrying amounts with the exception of its property. This had a fair value of $1.2 million below its carrying amount. The property had a remaining useful life of eight years.
What effect will any adjustment required in respect of the property have on group retained earnings at 30 September 20×1?
$( ) increase/ decreaseMy working
(W3) consolidated retained earningsPer question $1150000 (1200000/8yrs ×4/12) = $50000-1200000 = $1150000.
Pre acquistion ( $1200000)
———————
Post acquisition $50,000
Therefore increase by $50,000But correct answer is $40,000
Q3) Pamela acquired 80% of the share capital of Samantha on 1/1/20×1. Part of the purchase consideration was to pay additional cash on 1/1/20×4 of $200,000. The applicable cost of capital is 10%..
What will the deferred consideration liablity be at 31/12/20×2?
A) $150,262
B) $165,288
C) $200,000
D) $ 181,817
Correct answer is D) $181,817My working
$200000 *1/1.10^2 = $165289
I.E : ( B)
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