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Hi,
I’m just working through question 41 from the BPP practice and revision kit, which is a consolidation question taken from the Decmeber 2009 exam. Unfortunately the question is very long, so I won’t type it out here!
The first question asks me to calculate the goodwill. Provided is an extract of the statement of equity for the year end. However, how am I supposed to know if the share capital has already recorded the issue of shares on the purchase of the subsidiary, and whether the retained earnings have already been adjusted for the profit for the year and dividend paid? It doesn’t appear to say anything about this one way of the other in the question. As it happens, the answer in the back reveals that the statement of equity has not yet been recorded.
I’m sure I’ve done previous questions where the equity section of the SOFP has already been adjusted. Therefore, how do I know what to presume?
Thanks for your help.
I have another question about this question, with relation to the value of the net assets on acquisition.
The question states that “immediately after its acquisition of the subsidiary, the parent invested $50 million in an 8% loan note from the subsidiary. All interest accruing to the year end had been accounted for by both companies. The subsidiary also has other loans in issue at the year end.”
I should point out that the subsidiary was acquired exactly half way through the year. The answer calculates the interest on the loan as £2000, which I agree with (50,000 * 8% * 6/12). It then multiplies this figure by 6/12 again when adding it to retained earnings. I can only assume that it intends to accrue the interest evenly over the year, but it stated that the loan happened after acquisition. Therefore, why didn’t it add the $2000 to the retained earnings in full?
Thanks again.
Hi again,
I’ve worked it out now, so I’m not looking for any help now! I didn’t notice the date next to retained earning, which was from the beginning of the year. Also, they hadn’t accounted for the interest on the issue of shares, I was just a bit confused with their working.
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