group acct compr example

“1. At what point should inventory of the subs at fair value have a negative effect during adj.

Because on Ausra & D examples, D’s inventory fair value of 12k was in excess of the CV.”

I don’t understand your question. If, on acquisition, the fair value of inventory exceeds the carrying value, the adjustment will be to increase the fair value of subsidiary net assets as at date of acquisition – is that what you mean? If fair value is lower than carrying value then reduce the fair value of subsidiary net assets as at date of acquisition

2) “for each 2 shares” – how can that be misinterpreted? The important word here is “each”. If it had been for only 2 shares out of the entire 60,000, the question would have been (a) written as “for 2 shares” and (b) stupid

3) $9,000 IS the excess depreciation – we added back $27,000 and that figure represents the pup of $36,000 on the transfer less $9,000 excess depreciation on that pup

4) “share for share exchange, will it be ok if i just say 75% 40000/.5c * 1/3 = 20,000.”

No, because you haven’t multiplied by the $4.30 per share to arrive at $86,000

Otherwise, you can say what you like so long as you arrive at the correct answer!

5) “Note 6,the profits for the year for both entities were $70k and $60k, does the question actually meant profit realized at the end of the year?”

It means exactly what it says! Profits for the two companies for the year to 31 October, 2011 (before any adjustments necessary to be made ) were respectively $70,000 and $60,000″

How can that be misinterpreted?

6) “You said according to note 2 that the profits for the sale of PPE on 31.7.2011, was not based on trading activities, i will agree that it was not normal profit but if it is not trading activity, then what was it? it seems to me as the profit on tnca on transfer was (pup) but

my question is why adding it back to the post-acq profit of $14k ? where is now the record on of the post -acq profit of $50,000 ? does that mean it was insignificant? but only significant just to calculate the pre-acq profit of the $10,000 to get the fv adj figure of the subsidiary?”

What do you mean – where is it? It’s in working 1 on the first page of the answer. The narrative line that reads “TNCA transfer profit” has slipped one line and should be for the line above where the figures are “- 36,000”

7) “The intra group balance of $11.5, does this mean any intra group balance record must always be removed from both current asset( receivables ) and current liabilities (payable) on consolidation?”

It certainly does mean exactly that … and, what’s more, you may need (probably will need) to make an adjustment for cash and / or goods in transit before you are able to effect that cancellation

8) “Any cash transit must always be credited (removed) to the receivable acct and debited (add) on the cash acct on the receiving entity on consolidation?”

I can imagine a situation where the adjustment is to add it to payables and add it to cash (where, for whatever reason, the debtor entity is returning some cash to the creditor company) It would be VERY strange and I’ve never seen it but the real issue here is whether or not you really understand what is going on. Trying to learn by rote what the entries are for any and all potential adjustments is not the way to make progress!

9) “On working 2, R.E b/f of $124 was at the reporting date am i right? if it was, we already knew that 10,000 was pre-acq , and post was 50,000, how then did you have to still assume it was 60,000 because it this same 60,000 that was deducted to arrive at the R.E b/f of $64k. I do not understand the logic. This falls to question above on Q.6 of where is the significant of the $50,000 post -acq profit ? I know that the $36k which was the profit of the sale of PPE was post -acq , which i assume to be part of the profit for the year end $60k , i think the $10k pre-acq is a bit hard for me to comprehend. The transaction took effect on 31.july.2011 , this was after the parent got control of the entity. It is a group profit by the subsidiary after acquisition. So there should be no need calculating the pre-acq profit of 10k. Sorry this is just my thinking as a student, but i have to rely on your mastery over this. Pls help and clear my doubts and ignorance.”

The $10,000 is the pre-acquisition element of the ‘normal profits’. Added to that is the adjustment for the undervalued $12,000 inventory and we arrive at $22,000 pre-acquisition profits for the 5 pre-acquisition months

That figure of $22,000 is clearly shown in working W2 on the line “retained earnings 5 months”

I don’t understand your question where you ask “how then did you have to still assume it was 60,000”

I haven’t assumed that the year’s profits are $60,000 – that information is given. What IS important is the split of the $60,000 because, if we had ignored the pup on the TNCA transfer, we would have split that $60,000 year’s profit on a 5 / 7 basis giving us $25,000 / $35,000 split … and that would be incorrect

OK?