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Dear Tutor,
I cannot understand the workings laid out in the solution to the following activity. How did they arrive to the $660 part of the workings for net assets and $200 for NCI?
Pelmer Co acquired 80% of Symta Co’s 100,000 $1 shares on 1 Jan 20X2 for $600,000 when the reserves of Symta were $410,000. Symta had a brand name valued at $50,000 which was recognised on acquisition. The FV of the NCI at acquisition was $150,000.
On 01 Jun 20X6 Pelmer disposed of its shareholding for $1,500,000. At that date, Symta’s reserves were $710,000 and it had net assets with a carrying amount of $650,000. The value of the brand name has not changed since acquisition.
Solution:
Consideration transferred 1,500,000
Less
share of consolidated
amount at date control lost:
Net assets (100+660+50) 810
Goodwill 190
NIC at date control lost 200Gain 700
Thank you.
Hi,
I think the easiest way to get the net assets figure is to take the share capital of $100,000 and add on the reserves at the disposal date of $710,000. This then gives the $810,000 in the answer. I think their working is a bit too complicated.
I don’t quite follow the NCI calculation as it should be the NCI at acquisition of $150,000 plus the 20% of the post aquisition movement in reserves. I make the movement to be $300,000 ($710,000 – $410,000) but then this doesn’t then give the correct answer, and gives $210,000. It could be there is a mistake in the solution or that I’m missing something.
Thanks
Hi, thank you for making this question. I’m trying to solve it right now, but their NCI calculation is confusing. I will assume that it is a mistake. I arrived to the same answer that the tutor gave you.
I just spotted an error in their Goodwill calculation, it says:
600+150-410-50=190
but if you do the sum, the result is 290. They forgot to add 100 corresponding to the subsidiary’s share capital. The correct answer IS 190 though.
Well I finally understood this problem. The $710 figure includes the brand name fair value of $50 (710-50=660)
S’s NA:
at date of disposal = s/cap + reserves + brand = 100+660+50 = 810
at acq date = s/cap + reserves + brand = 100+410+50 = 560
post acquisition profits = 810-560 = 250NCI% of post acquisition profits = 250*20% = 50
NCI figure = NCI @ acq (FV) + NCI% post acq profits = 150+50 = 200
Goodwill = 600+150-100-410-50 = 190
Gain on disposal (group accounts) = 1500-810-190+200 = 700
P2-D2 wrote:I don’t quite follow the NCI calculation as it should be the NCI at acquisition of $150,000 plus the 20% of the post aquisition movement in reserves. I make the movement to be $300,000 ($710,000 – $410,000) but then this doesn’t then give the correct answer, and gives $210,000. It could be there is a mistake in the solution or that I’m missing something.
The correct figures to calculate NCI would’ve been:
710-460=250It was definitely a confusing question.
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