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Sir
Pact acquired 80% of the equity shares of Sact on 1 July 2014, paying $3·00 for each share acquired. This represented a premium of 20% over the market price of Sact’s shares at that date.
Sact’s shareholders’ funds (equity) as at 31 March 2015 were:$ $
Equity shares of $1 each 100,000
Retained earnings at 1 April 2014 80,000
Profit for the year ended 31 March 2015 40,000 120,000
––––––– ––––––––
220,000
––––––––
The only fair value adjustment required to Sact’s net assets on consolidation was a $20,000 increase in the value of its land.
Pact’s policy is to value non-controlling interests at fair value at the date of acquisition. For this purpose the market price of Sact’s shares at that date can be deemed to be representative of the fair value of the shares held by the
non-controlling interest.What would be the carrying amount of the non-controlling interest of Sact in the consolidated statement of financial position of Pact as at 31 March 2015?
A $54,000
B $50,000
C $56,000
D $58,000
Sir I dont understand why 20% of 20 000 of its land are add to the NCIWell, I’m struggling with this! The carrying value of the nci is calculated as:
Value at date of acquisition +
Share of post acq retained –
Their share of any goodwill impairment
Value at date of acquisition is 20,000 shares @ $2.50 each = $50,000
It’s not clear whether the fair value adjustment has or has not been reflected in the subsidiary figures nor whether we need to take it into account because “the market price of Sact’s shares at that date can be deemed to be representative of the fair value of the shares held by the non-controlling interest.”
IF we need to adjust for the fair value increase in land, the nci would be entitled to their share of that $20,000 increase ie their investment value would rise by $20% x $20,000 = $4,000
They are also entitled to their share of post acquisition retained ie 20% of the profits made and retained in the 9 month period since acquisition, so 20% x 9/12 x $40,000 = $6,000
There appears to be no impairment in goodwill so the carrying value of the nci as at 31 March 2015 should be:
$50,000 + $4,000 + $6,000 = $60,000
Unfortunately, that’s not one of the options 🙁
I’m going to have to ask you to check that you have a) given me all relevant information and b) you have correctly typed both the question and the answer
I just hope the mistake is at your end and not mine 🙂
Sir I got the same answer of $60 000. I copied/pasted the question from june 2015 (MCQ 5) so I couldnt have added or reduced some informations.
Well, it’s a strange question – I even looked at it again myself! I have covered in my original answer the possibility of interpreting the question as already having accounted for the fair value increase in the land, but it’s still a very strange question.
I believe the answer is:
FV NCI at Acquisition 50,000
(20,000 *2.5)% share of Post Acq. profit 6,000
(40,000*9/12*0.20)
NCI at YE = 56,000This is the formula used in computing NCI at YE using FV.
The Land revaluation doesn’t come into place here seeing as the formula in BPP states NCI’S FV at acquisition + NCI% of post Acquisition profit.
The 80,000 doesn’t qualify as that is the pre-acquisition profit.
Look at page 131 on BPP
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