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Hi Chris!
I had to push back my exam for some personal reasons.. but I am on a 2 week holiday so plan to do my exams this weekend or next!
I hope you are well, and wonder whether your baby has arrived! If the baby has arrived then congratulations!!
I have a few question on groups!
1. ZX Acquired 40% of the equity share capital of NM for £270m in 20×0 when the fair value of the net assets of NM was £600m. ZX acquired a further 30% of the equity share capital of NM for £260M on 1st October 20×3 when the FV of the net asset was £800M. The fair value of the initial 40% investment in NM was $390M at 1st October. 20×3.
What is the gain that would be recorded in the consolidated statement of profit or loss of the ZX group as a result of the acquisition of the additional shares in NM on 1st October 20X3 is?
a) 0
b) 40M
c)120M
d)300MCalculation:
This is a Associate to Subsidiary change in structure.
Gain/Loss on measurement:
FV of consideration= ??????
– FV for remaining consideration = 390m
= balance should be the gain/ loss on measurementI can not see the FV on consideration? is it the £260m?
please help.
thanks
Abi
Hi Abi,
Sorry to hear that you weren’t able to take the exam and I hope everything is now back in order.
On the date we gain control of the subsidiary we calculate the goodwill on acquisition and the gain on remeasurment to fair value of the original interest.
The gain is calculated by comparing the fair value of our existing holding to its value in the financial statements. So here we are comparing the 390 million to the value of the associate. The associate is measured using equity accounting so we will take the initial cost and add our share of the post acquisition profits. The cost was 270 million and the post acquisition profits 200 million (800-600) of which our share is 40%, so 80 million gets added to give the associate at 350 million. The difference between this 350 million and fair value of 390 million is 40 million and hopefully answer B.
Thanks
P.S. It was a baby boy born last week. We’re all doing really well thanks but a bit tired as you’d expect. He wishes you well in your exam! Keep up the hard work.
ahhh I see. Ok in examples I have seen I have mainly seen sub to sub acquisition where the question has gone on to ask for the gain/loss- since this was a associate to sub it was a little different- but nevertheless learnt something!
thanks again as always.
And Thanks for the encouragement! Feeling nervous but I have been working hard this past few months so just the final push now!
and congrats on the baby boy! 😉
Abi
Easier said than done but try not to get too nervous and let it impact your studies. You’re doing more than enough work to get you through the exam and just need to keep the batteries fresh for the exam. If you get chance put the books away for one night and get out and enjoy yourself, it will help you more than you think.
Thanks for the congratulations, he’s doing really well so far and sleeping loads. Fingers crossed it carries on!
Chris
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