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Hi Mike,
Could you please explain the gain calculated from disposal of 50% of Ceram?
I understand that now it became an associate (30%). I wanted to follow calculation model in your P2 notes (Chapter 4, page 33) but they are doing differently.
Why are they adding “value of NCI”? Why are they derecognising full net assets but not the share?
this question is really confusing, don’t you think so?Thanks Louisa
next question regarding unrealized profits.
I see they are eliminating intercompany profit by 1 mln AND Make Dr Revenue and Cr COS for 15 mln.
WHY?I think the following entries should be made:
Netting intercompany profits and adjusting inventories:
Dr revenue 15 (that is 10 to Bochem and 5 to Ceram)
Cr COS 14 (9 sold in Bochem and 5 sold in Ceram)
Cr Inventories 1 (inventories value in Bochem)Please, clarify this matter.
Hi
I’m not sure about the inclusion of the nci matter. I appear to disagree with the mighty tuition providers in the World. However, until I see a worked example from the P2 examiner, I’m going to continue. In an exam situation, if you’re getting so far with a answer, this nci matter is not going to be a pass/fail matter
For the intra-group, I tell my students to deal with intra-group sales on a $ for $ basis …. so Dr Revenue 15 and Cr Cost of sales 15.
Now, after that adjustment has been made, do the pup adjustment by adding to cost of sales 1 and reducing inventory on the Statement of Financial Position 1
It has the same effect as your three-legged entry but I think it’s safer to do $ for $ Revenue / Cost of sales followed by the pup adjustment
When you sell 50%, you lose control & it is a subsidiary disposal but you end up keeping influence, you end up with an associate. From the parental point of view, the parent has 80% of ownership & then the parent sells 50% & it still has 30% of the shares & all that is fine from parents point of view.
From the point of view of the group there have to have a subsidiary disposal because we have lost control but also have to have a sub acquisition. So what we are deemed to have done is to have sold the whole sub, completely sold the sub & bought back an associate. Now it is true that we lost control of the subsidiary but it is not true that we have sold the 30% but we are deemed to have it sold it in order to give us a full disposal. So when we actually sell the 50% we are deemed to have sold the 30% and bought it back, sold the 30% and bought it back. We are deemed to have sold the whole 80% & bought back 30%
Actual Proceeds 50%
Deemed Sales Proceeds 30%
NCI 20% (You also got to derecognise the Non Controlling Interest, You can’t lose control & keep your NCI)
[If you look this, it adds up to 100%= 50%+30%+20%] (So, you got 100% at the top of the calculation & then you got 100% of the subsidiary at the bottom) (100% of the subsidiary is all of the net assets & all of the goodwill & that’s gonna give you the profit on disposal).
Net Assets
Goodwill
Profit on disposalSo your calculation are gonna look like this:
Actual Sale Proceeds 50%
Deemed Sale Proceeds 30%
NCI 20%
Net Assets
Goodwill
Profit on DisposalHere you can see the examiner answer on page 4 which have same calculation
https://www.accaglobal.com/content/dam/acca/global/PDF-students/2012/p2int_2010_jun_a.pdfAlso here is an examiners article from February 2009 that also illustrate it with example.
https://www.accaglobal.com/content/dam/acca/global/pdf/sa_feb09_holt.pdf
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