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June '15 – 1st Question, Section B

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › June '15 – 1st Question, Section B

  • This topic has 3 replies, 2 voices, and was last updated 6 years ago by MikeLittle.
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  • Author
    Posts
  • November 7, 2016 at 7:47 am #347790
    bojanbih
    Member
    • Topics: 17
    • Replies: 16
    • ☆

    Hi Mike,

    could you please help me to understand why we for calculation of G/W need to adj FV of SNA @ DOA part for Cyclip’s profit for the year. So we need to take into consideration (2400+100)*3/12.

    I am clear with the part that is related with interest capitalization, but I am not sure for the subs. profit.

    Thank you in advance.

    Regards.

    November 7, 2016 at 8:20 am #347799
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    Because, on the event of a take-over, we need to know the fair value of the assets acquired for the purposes of computing goodwill.

    But we won’t be given a statement of financial position as at date of take-over part way through the year

    So we need to go back to the fundamental accounting equation that we came across in F3 (or University … if you were crazy enough to take advantage of the exemption!) and that equation tells us that:

    shareholders’ funds = net assets

    This extends in a take-over situation to:

    shareholders’ funds = fair value of net assets

    Now consider the component element of shareholders’ funds

    Share capital, share premium, other reserves and retained earnings

    But those retained earnings will be stated as at the previous financial year end so we need to time apportion the current year’s earnings to be able to deduce …

    the retained earnings figure as at date of acquisition and thus

    shareholders’ funds as at date of acquisition and thus

    the fair value of the net assets as at date of acquisition

    Does that answer it?

    November 9, 2016 at 7:40 am #348153
    bojanbih
    Member
    • Topics: 17
    • Replies: 16
    • ☆

    Yes, it is.

    Thank you, Mike.

    November 9, 2016 at 8:13 am #348163
    MikeLittle
    Keymaster
    • Topics: 26
    • Replies: 22705
    • ☆☆☆☆☆

    You’re welcome

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