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Hello Sir,
I’ve actually seen this topic 2 days ago, but the topic starter did not include the question. Anyhow, I’m running into the same issue.
The question is from BPP 16-17 and the number is 115. The question goes as following:
Company A acquired a 70% holding in Company B on 1 January 20X4 for $600,000. At that date the fair value of the net assets of Company B was $700,000. Company A measures non-controlling interest at its share of net assets.
On 31 December 20X6 Company A sold all its shares in Company B for $950,000. At that date the fair value of Company B’s net assets was $850,000. Goodwill was not impaired.
What was the profit or loss on disposal to be recognised in the consolidated financial statements of Company A?
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The technical article regarding this topic on ACCAglobal.com gives the following calculation:
Sale Proceeds X
Less: Carrying amount of goodwill at date of diposal (X)
Less: Net assets at date of disposal (X)
Add back: Non-controlling interest at date of disposal XThe solution given is the following:
Disposal proceeds: 950,000
Goodwill on disposal: (600,000 – (700,000 × 70%) (110,000)
Share of net assets at disposal (850,000 × 70%) (595,000)
Profit: 245,000———————————————-
Questions is, why is the ‘Add back: Non-controlling interest at date of disposal’ not included?
It would possibly have been clearer if the answer / solution had been written in the style of the ‘proforma’:
Sale Proceeds $950,000
Less: Carrying amount of goodwill at date of disposal $(110,000)
Less: Net assets at date of disposal $(850,000)
Add back: Non-controlling interest at date of disposal $255,000you see, not all that $850,000 net assets is ‘ours’
30% of it belongs to the nci so we shouldn’t have deducted the full $850,000
Is that better?
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