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Dear Sir,
In 2008 Cash Flow problem , I did not understand
1) How share of Associate has come 96. ACCA Has calculated it as underAssociate
Balance at 30 November 2008 100
Less profit for period 24 X 25% (6)
Add Dividend received 8 M X 25% 2
=======================================
Cost of Acquisition ( Cash) 96
I am not understanding how this figure of 2 is arrived at and if we have received 2 Million then how come Cost of acquisition is 96 and NOT 922) In the same problem generally for Cash Flow problems we do T based calculations for every item of Statement of Financial Position. For AFS ( Available for Sale category) ACCA Solved problem has NOT done it
Kindly help.
Deep
The T account approach is not a mandatory approach. Most of my students dislike T accounts so I’ve started approaching cash flow questions using schedules …… but they are only the same as T accounts but written out horizontally
If the closing value of the Investment in Associate is given as 100, and we need to find how much the investment cost, we have to work backwards. The calculation of W5A Investment in Associate is effected as follows:-
Cost of acquisition + share of post acquisition retained – impairment in the investment = Investment in Associate
We know the figure for Investment in Associate (100), we know share of post-acq retained (4) (ie post acq of 6 less amount distributed 2)
Therefore, cost of acquisition + 4 = 100.
Can you take it from there?
Dear Sir / Madam,
Thank you very much. But kindly go through actual adjustment
Warburt purchased a 25% interest in an associate for cash on 1 December 2007. The net assets of the associate at the date of acquisition were 300 $ Million. The associate made a profit after tax of 24 $ Million and paid a dividend of 8 $ Million out of these profits in the year ended 30 November 2008. Assume a tax rate of 25%.
My Assessment
Closing Balance of Investment in Associate is 100 Million – we are due to get 25% of Associate Profit ( Net of Tax) that is
25% X 24 Million = 6 Million – Tax is 25% = 1.5 Million that means against the investment of 100 Million we have received net of 4.5 Million leaving net investment from Cash Flow Point of view to 95.5.
How Warburt received dividend of 8 Million when it is NOT eligible to get that much i.e not more than 25%.
Even though we assume Warburrt got 8 Million then 8 Million net of tax ( 8- 25% tax) becomes 6 Million leaving our net investment 100 – 6 = 94 Million.
ACCA Has shown in Cash Flow
1) Net investment as 96 Million
2) Dividend received 2 Million.
I am unable to comprehend those figures.Kindly take pains to clarify issue.
Deep
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