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Hello Sir. I’m having difficulty answering question Q106 pg32-Highveldt in bpp revkit.
I don’t understand how the revaluation surplus of the parent-HighVeldt of $45M , note(ii) and note (iv) will affect the net assets of the subsidiary-Samson as at the reporting date. please help.Note(ii)- Included in Highveldts investments is a loan of $60m made to Samson at the date of acquisition. interest is payable annually in arrears. Samson paid the interest due for the year on 31 March20X5,but Highveldt did not receive this until after the year end. Highveldt has not accounted for the accrued interest from Samson.
Note(iv)- Samson’s development project was completed on 30 September 20X4 at a cost of $50 million. $10 million of this had been amortised by 31 March 20X5. Development costs capitalised by Samson at the date of acquisition were $18 million. Highveldt’s directors are of the opinion that Samson’s development costs do not meet the criteria in IAS 38 ‘Intangible Assets’ for recognition as an asset.
Note (ii) – accelerate the receipt of cash into Highveldt’s records (it’s a cash in transit problem) with the entry:
Dr Cash
Cr Investment IncomeI don’t see how this has got anything to do with “the revaluation surplus of the parent-HighVeldt of $45M”
Note (iv) – the fair value of the Samson assets are over-stated by the $18 million that has been capitalised as at date of acquisition so we need to reduce that fair value as at date of acquisition by that $18 million
Does that explain it all for you?
Its still not clear Sir. So when we credit the investment income its a gain in equity investment on the subsidiary i.e gain of $60m ?
Sir I also don’t understand how to calculate the fair value adjustment as at the reporting date. Do you have the question sir or should I type it out then you explain ?The loan is an investment – we’ve lent money to Samson
But pretend for a minute that it’s not Samson that has borrowed this money – it’s a friend of ours – let’s call this friend John
John borrows $60 million from us at a rate of 10%
At the end of the year John sends us the $6 million but we don’t receive it until after our year end
So our INCOME account is understated and our CASH account is understated
Now ask yourself this … what has this got to do with the value of our investment?
Absolutely nothing at all – the only two accounts that need adjustment are the Income account and the Cash account
“Sir I also don’t understand how to calculate the fair value adjustment as at the reporting date.”
Which fair value adjustment?
Sir what i don’t understand is how they calculated the share of the post acquisition reserves. I managed to calculate the nets assets of the subsidiary as at acquisition but I don’t know how they calculated the net assets as at the reporting date.
The answer for calculating the NCI is:
NCI at acquisition (per question) = 83
NCI share of post acquisition retained earnings((wiii)48*25%)= 12
NCI share of post acquisition revaluation surplus((wiii)4*25%)= 1
NCI share of goodwill impairment= (5)
NCI as at reporting date= 91wiii) Revaluation surplus
Parents own revaluation surplus= $45m
group share of Samsons post acquisition revaluation($4m*75%) =3
=$48mDon’t understand what they’ve done in (wiii)
Working (iii)?
Per the question there is a $45 revaluation in Highveldt and a $4 post-acquisition revaluation in Samson
What is there not to understand?
If you still have a problem …
… the only version of the question that I can find is not the same as the one that you are looking at
The version in front of me suggests an nci balance at date of acquisition of 34, not 83
For me to help you, it will be necessary for you to type out the full question – is it worth it?
Honestly sir it would be difficult to type out the whole question. But I appreciate the help sir , I managed to understand more of what the question required with your help. Thank you.
Sir could you also assist me on how to answer this mcq
Hillusion acquired 80% of skeptik on 1 july 20X2. in the post -acquisition period Hillusion sold goods to Skeptik at a price of $12m. These goods had cost Hillusion $9m. During the year to 31March 20X3 Skeptik had sold $10m (at cost to Skeptik) of these goods for $15m.
How will this affect group costs of sales in the consolidated statement of profit or loss of Hillusion for the year ended 31 March 20×3 ?
A. increase by $11.5
B. inc by $9.6
C. Dec by $11.5
D. Dec by $9.6Cancel the intra-group sale of $12 million by reducing revenue and cost of sales by the transfer value
Calculate the pup (I assume that you can do that – it’s the amount of profit that is included in the closing inventory held by Skeptic of those intra-group traded goods) and add that pup to cost of sales
And there you have the answer
OK?
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