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Hi
There are three examples called Ivona and Guido and you appear to be mixing all three into one package
Example 6 on page 40 illustrates the issue where the nci goodwill amount is given
Example 7 on page 41 illustrates the issue when the nci investment is given and
Example 8 on page 42 illustrates the issue when the subsidiary share value is given (in this example, the share value is given as $1.65)
OK?
Sir Mike, I listened to the lecture twice and solved that same qns- example 11- dalius and ramuna twice. still i did not get working 3- con. ret. earns.
Why do we have to add the Non-depreciable non-current assets
Depreciable non-current assets to ramuna’s ret. earns? is it because of some basic concept that i am still ignorant of?
pls. help.Kaplan and BPP set about finding the value of post-acquisition retained earnings in their way. I do it my way (because I find it easier!)
Others calculate the value of the subsidiary as at date of acquisition and again at date of consolidation. The difference is the post-acquisition element of retained earnings and other reserves (there will be no issue of shares subsequent to acquisition in an F7 question)
The way I do it is within working W2 goodwill and working W3 consolidated retained earnings.
In W2, we needed to find the fair value of the subsidiary’s net assets as at date of acquisition. This is done by finding the book value (per the question) and making adjustments to those figures. In the example you are asking about, there are three adjustments to be made as at date of acquisition – inventory, non-depreciable non-current assets and depreciable non-current assets.
Then, in working W3, we specifically need to find the post-acquisition retained earnings in the subsidiary. This we can do by finding the subsidiary’s reserves “today” as amended for fair value adjustments “today” and comparing that figure with the retained earnings from “yesterday” as amended for fair value adjustments as at date of acquisition
The fair value adjustments “today” are the fair values “today” of the subsidiary’s net assets and these net assets include the non-depreciable non-current assets and the depreciable non-current assets (the inventory has been sold so there’s no “wrongly valued” inventory left in the subsidiary)
The non-depreciable non-current assets have kept their value since date of acquisition (in the absence of any information to the contrary) but the $30,000 5 year depreciable non-current assets have been owned at consolidation date for 2 years so now have a fair value of $30,000 x 3 / 5 = $18,000
Does that explain now why we have to add the non-depreciable non-current assets and the depreciable non-current assets when trying to find the consolidated retained earnings?
If not, post again 🙂
Sir Mike, I listened to the dividends lecture. In working 3- cons. ret. earn- the proposed div. payable is clear to me. both Liamonas and Kristine have proposed div. to pay to each other 16000 and 10000 respectively.
My doubt is–In the proposed div. receivable, why is the dividend eligible for Kristine to be recd. not added to her account? Also, how did you know that Liamonas have to receive 9000 only ? Is it from her share 90%? Then why Kristine is not receiving her share?Oh DEAR!!!!!
Why would Laimonas pay a dividend to Kristina at the same time Kristina is apying a dividend to Laimonas? This surely cannot make sense to you if you stop and think about it for anything longer than 3 nano-seconds!
Who owns the shares in the subsidiary, Kristina? The parent, Laimonas! And from whom did the parent, Laimonas, buy those shares? Yes, the former shareholders in the subsidiary, the former shareholders in Kristina
OK so far?
Now, when the subsidiary, Kristina pays a dividend, to whom shall she pay it? Her shareholders. But 90% of those shares are held by Laimonas, so 90% of the Kristina dividend is to be paid to the parent company, Laimonas
Now it’s Laimonas’ turn to pay a dividend. To whom shall Laimonas pay the dividend? Who owns the Laimonas shares? Well, it’s the Laimonas shareholders of course. And one thing is for certain! None of the Laimonas shares are owned by Kristina! Not one! It is against the law for a company to own shares in itself or in its holding company.
Would you like to ask me that question again?
“both Liamonas and Kristine have proposed div. to pay to each other 16000 and 10000 respectively.”
Er, emphatically, NO!
OK?
Sir, why do we have to cancel out the inter- group transactions? cash-in-transit is the same as inter-group transaction, am I right?
If I sell to me, and at the same time I buy from me, why would I want to show that as part of my financial statements?
If I increase the consolidated revenue figure, because I sold goods to the subsidiary, by $8,999,333,672,941 and at the same time I increase the cost of sales, because the subsidiary has bought goods from me, by $8,999,333,672,941, what’s the affect on the consolidated profit figure? You’re right – there is no affect. But surely, so far as the group is concerned, revenue is overstated by $8,999,333,672,941 and that’s clearly a misleading figure
As for cash in transit, no, it’s not the same. The combined cash figure is an asset whereas the revenue and cost of sales figures are income and expense respectively.
OK?
I noticed that F6 lectures has a note beside each lecture title of how long the lecture lasts. Do you have this option for f7 lectures? Or would you be able to indicate the total length of the lectures for F7? Thank you.
Hi
I’m not in the habit, thankfully, of watching the F6 lecture videos so I have never noticed this “time note”
I presume that you want to know before you start watching whether you will have time to watch the whole video before dinner is ready (or whatever)
Does it matter that you watch the entire performance in one session? Can you not just start and then, if you get called away, click “pause” and come back to it later
?
Thank you Mike for your reply. I would like to know this so that I estimate how long it will take me to listen to the entire session. I find the lectures very helpful and use them as my study tool alongside a study text. By having this added information it would help to manage my time, around dinner and other things. However, if this information is not available, or you are unable to say the length of the entire F7 lectures, then that is not a problem.
Thank you to the all Open Tuition team for providing these lectures.
Roisin
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