Fair Value Adjustments -Associate-

“Question 1- Fair Value Adjustment for Associate “AT Acquisition”

i) Fair Value Adjustment itself
ii) Additional Depreciation

Question 2 : Fair Value Adjustment for Associate “Post Acquisition”

i) Fair Value Adjustment itself
ii) Additional Depreciation”

So, basically the same treatment! Why differentiate?

We are not going to deal with the Associate on an asset by asset basis as we do with consolidation. Instead, take cost of acquisition, add on share of (adjusted if necessary) post-acquisition retained and deduct any impairments.

Occasionally, the examiner will ask you to calculate the Premium paid on acquisition of the Associate.

In that situation, fair values at date of acquisition are taken into account when finding the Fair Value of the Associate Net Assets at date of acquisition” in a similar way to calculating goodwill for a subsidiary in working W2.

However, differing from working W2 (Goodwill on acquisition of a subsidiary) we do not consider the value of the remaining share holding (the other 65% say) Instead, having arrived at A’s fair valued net assets, apply our (say) 35% to the fair valued asset amount and compare that calculated figure with the cost of acquiring the investment in the associate. That will give you the premium paid on Acquisition

Meaow! By way of introduction to the response to your question …..

A non-controlling interest is measured for the SoFP as “Value at date of acquisition + share of post-acq retained – share of impairment” and for the CSoI they are measured at

“Their share of
this year’s
subsidiary
adjusted,
time apportioned,
translated
profit after tax”

In your post, you are asking about accounting for an associate. In an associate, we are the nci and I have just established above that this is how we account for ncis

So, for the CSoFP, the investment in the associate is calculated as:-

“Cost of acquisition + share of post-acq retained – any impairment”

and for the CSoI we are measured as follows:-

“Our share of
this year’s
associate
adjusted,
time apportioned,
translated
profit after tax”

Note the use of the word ADJUSTED

Your first question “Example 1:At acquisition ….. should we debit Consolidated Reserves and credit Invesment in associate ; as reserves will change by additional depreciation on revalued amount }” — NO, it’s a notional adjustment to the associate’s POST acquisition retained earnings of which we are going to account for our share within consolidated retained earnings and investment in subsidiary.

The assets at date of acquisition are being fair valued at date of acquisition. You cannot anticipate into the future the effect on depreciation and then bring that future effect back into assets at date of acquisition. And you cannot argue that the revalued, fair valued assets should have had more (or less) depreciation charge in the past. That would be irrelevant because we are being told what the valuation is as at date of acquisition

I don’t know why you are trying to make this so complicated!

Investment in Associate is calculated (again) as “Cost of acquisition + share of post-acq retained – any impairment”

In calculating the post acq retained you could well be faced with an adjustment for “additional depreciation” on an upwards revaluation not recorded within the associate’s records but that’s F7 stuff

This basis for arriving at Investment in Associate …… why are you having problems?

“Cost of acquisition” surely cannot be a problem

“Share of post acquisition retained” may be an issue but that’s simply the F7 way of comparing retained earnings “today” as adjusted for matters such as “fair value adjustments” and “additional depreciation” with retained earnings “yesterday” as adjusted for “fair value adjustments”

And “any impairment since acquisition” should equally be within an F7 student’s abilities