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Please, sir could please assist on question 8 & 9 and 15?
Everything else are well cleared but :
Qtn 8, FV OF SNA
Ret ears 6 months which i taught should be ( 21000/2) but answers is (21000+2000)/2
Please, where did that 2000 come from?
Q 9, very ok but what happened to the $1m increase in value to S’s land since during post acq its values increased at date of acquisition ? I taught what we are looking at when calculation fv SNA @ doa means all the assets of the subsidiary at date of acquisition , please clarify me well sir.
Lastly Q 13, FV of SNA @ doa
ret ears 6 month 6/12(4700-100). I taught it is supposed to be 6/12 * 4700
Please, where did the figure 100 coame from?
Thanks in advance.
“Please, where did that 2000 come from?”
This is the loan interest that relates only to the 6 months’ post acquisition period but has been deducted in arriving at the year’s profits
The reported profit was $21,000 but that’s after deducting that post-acquisition expense of $2,000 so, before that interest deduction, the profit for the year must have been $23,000
And that’s just $11,500 for each half year
But then, from the post acquisition $11,500 we need to deduct $2,000 loan interest so post-acquisition profits are only $9,500
OK with that?
For question 9, in the exam room, a question will often say (The fair value of the subsidiary’s net assets was the same as the carrying value withe the exception of …(a piece of land / a building / inventory / whatever)” so the only change required as at date of acquisition is to the one or two assets where we are told that fair value differs from carrying value
As for the fair value increase treatment as at the year end – well that depends upon how you want to calculate the post-acquisition profits. But if the land had a fair value increase of $1 million at date of acquisition, then the fair value of that land will probably not have changed but it’s probable that the subsidiary has NOT reflected that fair value increase in its financial records so, when calculating the year end position, we need to remember to add that $1 million on to the carrying value of the land
OK with that?
Q 13 To save me searching through, can you please tell me which mini-exercise section this question has come from?
That you so much for your explanation so far . The section is Non current asset. They are 15 questions in total .
That 100 is the additional depreciation caused by the fair value adjustment of $20 million plant with a 10 year remaining useful life
(20/10 * 6/12)
Without that additional depreciation charge (that relates ONLY to the post-acquisition period) the loss for the full year would have been just $4,600 and the pre-acquisition element would be 6/12 of the $4,600
OK?
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