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Hi Mike,
1) Just confused about exchange rate issue.
In OT notes – Cha12, Example 2 – Grainger, assets, equity and liabilities of M all using closing rate (6.2), However, in Rose Group June 2011 answer sheet, equity part of Stem using opening rate (6).
Which is right?
2) In working 2, Goodwill calculation, Total increase in goodwill is c/f-b.f = 25,484-21,695= 3,789, not 5,412 as shown in the answer to examples page 227. Because based on goodwill impairment calculation, total impairment is 10,921-9,298=1,623 proportionate to 70% to G, 30% to NCI. But increase in goodwill’s way is not consistent. Pls check.
3) $14,000 dividend from M should be remove from Group R.E. in working 3 or not? I think it’s intra-group transaction, should be reversed. Is it correct?
Thanks,
QinI understand that it’s an allowed alternative to translate EVERYTHING at closing rate including the opening capital and pre-acquisition reserves
The goodwill increases because of the exchange rate movement by 5,412. But at the same time, the impairment from prior years is also restated and increases by 1,623.
Hence the net increase in goodwill of 5,412 – 1,623 = 3,789
The working W3 “song” from your F7 days says “H’s own + H’s share of S post-acq retained – goodwill impaired since acquisition (just our share)”
Ok, H’s own retained earnings include the 14,000 and that’s the way it should be for W3 Consolidated Retained Earnings. For the purposes of the Consolidated Income Statement we ignore the intra-group dividend
OK?
Hi Mike,
It’s so happy to study your answer everyday.
1) ex rate 2) Goodwill, understand now.
3) S’ dividend to H, I dig out ur answer from other threads relative to intra-group div (you said: There really isn’t a debit and a credit involved – it’s a “consolidation adjustment”, So the ignoring of the intra-group dividend received is not achieved by “debitting” anything at all). It seems to me intra-group div. is really not a intra-group transaction. So no treatment in Consol B/S or Consol IS. Is it correct?
4) Can you give more details about W5 Exdiff +9,166 where it comes from? I can’t figure out by myself.
Thanks,
QinHi Qin
You may be happy to read my answers everyday …… I can’t express my feelings each day when I see yet another 6 posts from the Mighty Qin (you’re probably too young to remember the hit record by Manfred Mann)
Anyway, here goes on yet another marathon answering session…..
You’re correct – as a consolidation adjustment, it simply involves setting off the relevant amount of interest receivable / received against that same amount of interest payable / paid (reduce expense, reduce income)
IF the interest has not yet been paid, there will be an amount in Current Assets and also in Current Liabilities. Those too need to cancel when preparing the statement of financial position
The ex-diff is calculated as the missing “X” in the equation:-
“Opening net assets @ opening rate + retained profit this year (per translated income statement) +/- “X” = closing net assets @ closing rate”
OK?
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