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Cost of investment, CSoFP

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cost of investment, CSoFP

  • This topic has 5 replies, 2 voices, and was last updated 13 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
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  • March 12, 2012 at 1:29 pm #51828
    rimx
    Participant
    • Topics: 31
    • Replies: 37
    • ☆☆

    Hey,
    I couldn’t find the topic of deferred and contingent consideration with the unwinding of discount in the OT notes. I am having a bit of a problem in calculating the present value for deferred consideration following consecutive years, can you tell me the formula and how is it calculated for consecutive years?

    Also, i wanted to know about the F6 tax tutor as he is not responding since many days, you know anything about him ?

    March 12, 2012 at 5:30 pm #95417
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    re F6 tutor, I’ve just emailed admin to get Tax tutor’s email.

    Deferred consideration? Take the amount payable, say $100, in say 2 years time. Let’s say the cost of capital is 10%. Ask yourself “How much should I invest today in order to have $100 in 2 years time” The amount you will need is 100 x 1/1.10 x 1/1.10. That calculates to $82.64

    So, if I invest $82.64 for 1 year at 10%, at the end of 1 year, I’ll have 82.64 + (10% x 82.64) – that’s equal to $90.91. If I invest $90.91 at 10% for 1 year, I’ll have $90.91 + (10% x 90.91) = $100.

    So, the formula to apply is multiply the target figure by 1/(1+r) < where r is the rate of interest / cost of capital > and do this for as many years as you need to discount

    OK?

    March 13, 2012 at 10:02 am #95418
    rimx
    Participant
    • Topics: 31
    • Replies: 37
    • ☆☆

    Yes, actually i couldn’t understand the method applied to calculate the present value of the deferred consideration directly at the date of acquisition after 2 years in the test your understanding 4 Hazelnut of the kaplan text. I got the answer from this method but got confused in that one. Can you just explain me how it is computed there ?
    And why this topic ain’t in OT notes ?

    March 13, 2012 at 10:06 am #95419
    rimx
    Participant
    • Topics: 31
    • Replies: 37
    • ☆☆

    Sorry, at the date of reporting.

    March 14, 2012 at 7:33 am #95420
    rimx
    Participant
    • Topics: 31
    • Replies: 37
    • ☆☆

    Also, can u tell me that is it important to show the goodwill attributable to NCI in your workings ?

    March 14, 2012 at 9:39 am #95421
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23327
    • ☆☆☆☆☆

    Hi, in answer to your first question, the value of the deferred consideration as at reporting date? This is calculated as “the amount payable in the future discounted to today” In this example, the amount payable in the future is 500,000 and it’s payable in 12 months’ time. So we need to discount the 500k for one year to find the liability on the SoFP.

    If we discount it for two years we arrive at the figure which represents the liability brought forward from the end of last year. Compare these two liabilities and you arrive at the figure of 79 which represents a finance charge arising upon the unwinding of the discounted amount. That 79 should be included in the SoCI as a part of this year’s finance costs

    Does that help?

    Now, the goodwill attributable to the nci. No, there’s no need to show it separately. What you really would sensibly do is show the split of the goodwill impairment between our share and the share attributable to the nci.

    Incidentally, I have a little problem in my mind and I don’t know the solution! Tackling the problem of the goodwill calculation in the way I used to do it, it was obvious at what point the whole of the goodwill attributable to the nci had been impaired and, I believed, at that point they would not be charged with any more impairment.

    It seems that – yet again! – I was wrong. It appears that, if we have originally valued the nci on a fair value basis and therefore they have some goodwill attributed to them, then so long as there is a balance of goodwill which has not yet been impaired, the nci will suffer their share when eventually that goodwill IS impaired.

    Personally, that doesn’t seem fair to me! But I carry no weight in the minds of the standard setters 🙁

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