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Hello Mike
Hope you are well
i have some important queries which i am including all of them in one thread as it will be time consuming to create separate threads for each.
Q1) i understand that if we have a contingent liability on acquization of subsidiary then we do record this in calculation for goodwill. however how should we deal with a situation where for example the contingent liability amount on the date of acquisition is £1000 but at the end of reporting period increased to 1200? what will be the impact of this transaction and double entry?
Q2) EXAMPLE 4 in open tuition course notes have got dividends but that is proposed dividend which is not paid and hence appearing under current liabilities. however what will be the treatment for NCI if dividends are paid? also for Question 2 single company accounts in F7 exam, how should we treat proposed dividend? i know we deduct paid dividends in statement of changes in equity but what about proposed?
Q3) while acquiring a subsidiary, is it possible we can have a situation where there is a construction contract sitting in the net assets of subsidiary? how should we value that?
Q4) We are normally told in questions about the fair value increase/decrease in PPE of subsidiary and we record these in goodwill calculations plus their depreciations in retained earnings. however what if we have another increase or decrease in subsidiary asset (at the end of reporting period) after we have already recorded it at fair value at acquisition? how shall we account any decrease or increase then?
Q5) How shall we deal with a situation where at acquisition, there is a tax benefit arising from the subsidiaries tax losses that was not recognized by the subsidiary previously?
Q6) If there are any restructuring costs and future losses of subsidiary at acquisition then am i right in saying that we should completely ignore this?
Q7) How shall we calculate present value of deferred consideration if say for example we acquired the sub on 1st march 2010 but we have to pay the sub £200 in June 2010 (which is the reporting date) at 10% cost of capital. how shall we calculate this when we take time thing into account?
thanking you in anticipation
1) no impact on goodwill. 200 increase charged against profit or loss
2) same again, deduct in statement of changes in equity so long as the dividend is proposed BEFORE the year end
As for the nci, in working W4A they are entitled to the value at date of acquisition + share of S post-acq RETAINED – share of goodwill impairment
3) question will tell you what to do and how to value it
4) through a revaluation reserve and, on consolidation, treat it in exactly the same way as you would retained earnings (H’s own + H’s share so S post-acq retained)
5) the same as you would any fair value adjustment. Pretend it’s an unrecognised brand. How would you treat that?
6) yes, unless they have been announced as at the date of acquisition in which case we need to include them as an obligation as at date of acquisition
7) calculate unrolled discount for one year and divide by 4. It’s not strictly accurate but this is an accounts exam, not a doctoral thesis for a further mathematics professorship
Ok?
thanks Mike i really appreciate your response.
also how do we value the fair value of inventories for the calculation for goodwill if during acquisition if we some of these for subsidiary? what is the processing of recognizing receivables/payables when subsidiary when calculating goodwill?
another question: why do we not recognize dividends paid by associate in our consolidation accounts?
also in one of the questions of group accounts, there was a right down of software because the directors thought it had no recoverable value. in the solution the amount was this was deducted from net assets for the calculation of goodwill but this amount was again added back to retained earnings of the subsidiary during consolidation. i do not understand this treatment. why was it added back since these intangible expenditures needs to be written off if no longer recognized.
another one Mike and apologies as it is all last minute.
nci at proportionate method query: if this is through proportionate method then we use the proportion for NCI (lets say 20%) and multiply that to opening Retained earnings shares and share premium of the sub. do we also need to multiply this with amount of any intangibles or fair value increases at acquisition?
here is another question.
when we face with a professional fees of acquization, we expense this. but what if we face a situation we there were share issue costs during acquisition in share exchange? is there any diff treatment for this?
transfer of plant from subsidiary to parent at profit:
do we then debit the profit – additional dep from sub retained earnings?
No, I’m sorry but you cannot monopolize my time like this! If I get time answering all the other posts, then maybe I’ll come back to this epic series of questions
Last one first – not only is the depreciation adjusted for. So also is the unrealized profit on the transfer. It’s all in the course notes!
Share issue costs are not expensed like the professional fees are. Issue costs are part of cost of acquisition. But it won’t come up. There are plenty of other areas that are virtual certainties in the exam and share issue costs is not one of them
Nci, intangibles and fair value adjustments? Yes, they should be credited with their share of the fair value of the S net assets at DOA
BUT THIS IS ALL IN THE COURSE NOTES!
I’m sorry, but you should not be wasting my time like this where you could have found the answer for yourself
:-((((
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