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sir i have 2 doubts in this question
1) can u please explain how have they calculated gain on increase in value of Zinc
previous invest of 5% was measured at 2 and now its measured at 5 so this is a gain of 3 and for acq of 55% we paid 16 on dec 2002 but now its measured at 19 (from balance sheet) why is not a total gain of 3 + (19-16)=6 ..pls explain2) on acquisition the excess of fair value of na of zinc was 1 and 3 were recieved later on so why are we considering this for calculating goodwill?? how can we include in calculating gw when the val were recieved afterwards.
3) also sir my previous question that is it important to make that exchange table for foreign subsidary ques ..whats the purpose of it? i am really worried about this as my sir dint teach us that and when asked he said dont refer to the answer scheme
Hi,
The calculation of the gain on measurement to fair value of $2 million was very tricky in this question.
If at the reporting date the total investment is $19 million and in total we have paid $18 million then there is a gain of $1 million that has been made, which must be due to the increase in fair value of the 5% holding purchased on 1 June 2009. We have to attribute it to this as it specifically states that in the first sentence of part (ii) that this investment had been treated at fair value through profit or loss in the financial statements to 31 May 2011.
If this 5% holding has increase by $1 million then it must have been measured at $3 million on 1 December 2011 as it was previously bought at $2 million. If it was measured at $3 million on the date we gained control and the fair value was then $5 million then there is a gain of $2 million.
With regards the goodwill calculation, I think the answer makes it too complicated. The standard working takes the consideration paid and adds the fair value of the the previously held investment. So we paid $16 million and the fair value was $5 million, giving a total of $21 million.
And don’t stress about your foreign exchange. If you follow what you’ve been taught then you will be fine in any exam question. If you try and change things with such a short period of time to the exam then you will get in a right muddle. Stick with what you’re doing and it will be more than enough to get you a pass.
Keep up the hard work.
Thanks
thanku sir for ur reply but im still completely blank about the revaluation gain calculated..can u tell me whats wrong if we simply take (19-16)+(5-2)=6 as gain?
Hi,
Aren’t we trying to calculate the gain on the date we gained control of the subsidiary? On acquisition of the subsidiary we need to calculate the goodwill and any change in fair value of the original investment. If that’s the case then your calculation is not calculating the gain on the date we obtained control of the sub but the total gain at the year-end.
As I said previously, the calculation of the gain was very tricky indeed, so don’t worry to much about it in the exam. If you start trying to get things like this right in the exam you’ll only be wasting your time and losing easier marks elsewhere in the exam.
Thanks
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