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hi Mike
On 1 October 2010 Prodigal purchased 75% of the equity shares in Sentinel. The acquisition was through a share
exchange of two shares in Prodigal for every three shares in Sentinel. The stock market price of Prodigal’s shares at
1 October 2010 was $4 per shareThe following information for the equity of the companies at 1 April 2010 (i.e. before the share exchange took place)
is available:
$’000 $’000
Equity shares of $1 each 250,000 160,000
Share premium 100,000 nil
Revaluation reserve (land) 8,400 nil
Other equity reserve (re equity financial asset investment) 3,200 2,200
Retained earnings 90,000 125,000.NCI (FV) is $100 000
bpp asked for goodwill
their answerconsi 320 000
nci 100 000net asset
shares 160 000
others equity 2200
retaining earning 125 000.i dont understand why retaining earning at the acquisition date is 125000. I got
125 000 + 66000/2= 158 000.Extract from question:
“Note: you are NOT required to calculate consolidated goodwill or produce the statement of changes in equity.”
In addition, you are NOT required to prepare a consolidated statement of financial position
So why are you concerned about a BPP goodwill calculation?
If you really are concerned about BPP’s goodwill calculation, I can almost agree with you except the “other equity” should be reduced by 200 – the loss was deemed (per question) to have accrued evenly through the year – so the subsidiary’s fair valued net assets should be $160,000 + (2,200 – 200) + 125,000 + 66,000/2
That’s my best shot and I don’t have the BPP material available to check what they have done 🙁
However, I seem to remember putting up my answer on this site under the heading of “revision questions”. Check to see what I have done
OK?
please why 200 as it is not the draft sofp. im using the kit. bpp has updated the exam that is why the question asked for goodwill calculation. im not actually on june 2011 paper.
But 400 loss on financial asset investment is covered by the paragraph in the real exam that says “unless otherwise indicated, all items in the statement of profit and loss and comprehensive income are deemed to accrue evenly” (or something like that)
Check out the real exam – you’ll find it on this site. Go to “opentuition, home, acca, F7, past exams” and there you’ll find Prodigal with no requirement to calculate goodwill!
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