GROUP ACCOUNTS

Because the acquisition was on 31 March and the Ausra and Danute year end is 31 October so that’s 5 months pre-acquisition and 7 months post-acquisition

OK?

There is a solved solution but not an active video with me in front of a class.

Be specific, what particular problems are you facing (and please give me an exam reference so I can check the question before I resolve your problems

sir it came in december 2005.

Is the question Hedra, Aragon and Salvador

This one?

Hedra, a public listed company, acquired the following investments:
(i) On 1 October 20X4, 72 million shares in Salvador for an immediate cash payment of $195 million. Hedra agreed to pay further consideration on 30 September 20X5 of $49 million if the post acquisition profits of Salvador exceeded an agreed figure at that date (ignore discounting). Hedra has not yet accounted for this $49 million which is regarded as being at fair value. Salvador also accepted a $50 million 8% loan from Hedra at the date of its acquisition.
(ii) On 1 April 20X5, 40 million shares in Aragon by way of a share exchange of two shares in Hedra for each acquired share in Aragon. The share market value of Hedra ‘s shares at the date of this share exchange was $2.50. Hedra has not yet recorded the acquisition of the investment in Aragon.

Let me know soon please – as soon as possible

mike im extremely sorry for giving you trouble for a question that was 9 years ago..
i just heard a list of questions to practice so i was doing that..

i just need to know about the point 1. in fair value and adjustments and what to do with the general revaulation account and how will it affect the CSFP.

Hi

From what I can see …..

The cost of acquisition is (in $millions)

Cash 195 and
Deferred cash 49

Then there’s the nci to consider, but we cannot do that until we know the fair value of the subsidiary net assets at date of acquisition, and they are:

Share capital 120
Share premium 50
Retained earnings 20
Fair value adjustments:
Land 20
PPE 20 and
Deferred tax 40

That gives us a fair value of Salvador’s net assets at date of acquisition of 270, and the nci wants their 40% of that PLUS their goodwill ie (40% x 270) + 10 = 108 + 10 = 118

The cost to Hedra was 195 + 49 = 244

Add to that the nci of 118 and that gives a total of 362

Now compare that with the fair valued net assets to give 362 – 270 = 92 goodwill

OK so far?

You mention also the Revaluation Reserve in your post

The principle behind the calculation of the Revaluation Reserve (and any other reserve) is always the same old song: H’s own + H’s share of S post acq retained

In the case of Hedra, the post acquisition MOVEMENT is in the values of Land and PPE

The increase in the fair valued land post-acquisition is “By 30 September 20X5 this excess had increased by a further $5 million (note (a) (i))”

The movement in the fair value of the PPE is the depreciation element on the revalued surplus “note (a)(ii) The fair value of some of Salvador’s plant at the date of acquisition was $20 million in excess of its carrying value and had a remaining life of four years (straight–line depreciation is used).”

It’s a full year since acquisition so the depreciation on the revalued amount is one quarter of 20 = 5

So, on acquisition, the Revaluation Reserve would have been credited with 20 (land) and 20 (PPE) and that 40 is part of the valuation of the subsidiary’s net assets at date of acquisition and features in the working W2 Goodwill. The debit entries would have been to Land and PPE respectively

Post acquisition, there is a further increase of 5 in the land value so debit land and credit the Revaluation Reserve

Post acquisition there has been an extra 5 depreciation so debit cost of sales (probably) and thereby reduce the Retained Earnings in working W3 and credit PPE

Consolidated Revaluation Reserve (H’s own + H’s share of S post acq retained) is now:

Per question 15
Per note (a)(i) 12 (“The fair value of Hedra’s own land and buildings at 30 September 20X5 was $12 million in excess of its carrying value in the above statement of financial position.”)
plus 60% x 5 = 3

giving a total of 30

Does that sort it out for you?

You’re welcome 🙂