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January 21, 2018 at 11:00 pm #431882amandamcfadden
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- Replies: 2
Firstly, thank you so much for the awesome lectures and resources that you provide. I have just started self study for P2 and finding them very helpful!
I am currently struggling with the foreign exchange differences on subs – I thought I understood but then I tried to practice the BPP questions and got totally lost with their method – and it totally threw my understanding of the area.
My question on the lecture workings is – when calculating the Group R.E. using the ‘short method’ as per the lecture, should the gain/loss on the investment in the sub go to OCI on the other side? So for a loss, we debit our retained earnings and credit OCI on the GSPLOCI? I was a little confused with this, in the example in the lecture, we then created the SPLOCI for the next part of the notes but we did not do anything past the PFY so the loss was not included.
Also on the lecture – when we calculate the total loss due to exchange differences (29.5) we would put this to OCI, my notes say that this loss is somewhere hidden in the post acq reserves already – are you able to explain this part to me if possible?
With both points above, would the loss already have been accounted for in our Group R.E. by using the shorter method when preparing the GSFP?
When looking at the BPP examples, for a sub acquired on the 1/1/14 with reporting date 31/12/17 the goodwill calculation includes gain/loss for 15-16 and the gain/loss for 2017 to get the goodwill @ 31/12/17 – is this the same steps to follow for us using your lecture methods? and we then add the goodwill gains for both years to our G R.E. working for 2017? If the NCI had goodwill (so if the FV method was used) we would apportion these gains to the NCI calculation as well?
OR by using the opening net assets/goodwill/PFY proforma calculation method are we picking up the goodwill differences there anyway and therefore don’t need to add these extra steps to the goodwill/nci/RE workings?
Sorry for my lack of understanding, it has gone totally over my head.
I would be so grateful if I get a response to this.
AmandaJanuary 31, 2018 at 8:53 pm #434299P2-D2Keymaster
- Topics: 4
- Replies: 6317
Thanks for the kind comments. It’s great to hear you enjoy what we do.
I’ll try and answer the questions above.
1. I’d not worry about where the other side of the entry goes using the ‘short-cut’ method as we don’t need to think it through in the exam, but yes it would form part of the gains/losses through OCI. The actual gain/loss for the year is calculated by looking at the change in value of the net assets, profit and goodwill that are all consolidated.
2. Yes, the figure calculated in the group retained earnings is in effect a cumulative amount of gains/losses since acquisition of the subsidiary.
3. Yes, the shorter method makes life much easier with regards to performing the consolidation. In reality we’d have to do it in the same fashion as done in the text book.
4. Yes, our format for working out the gains/losses for the year works out the gains/losses for the year only, it is not cumulative. The cumulative gains/losses are only necessary for the group SFP.
I hope I’ve covered all you need, it is a complex topic so don’t get too frustrated with it.
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