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ACCA FR Chapter 23 Consolidated statement of financial position Questions Question 2 0f 10
the question
On 31 March, 2014 when Code plc acquired 65% of the 3,000,000 $1 equity shares of Dole
plc, the retained earnings of Code plc and Dole plc were $2,720,000 and $1,940,000
respectively and the market value of the Dole plc shares was $2,60
The carrying amounts of the Dole plc net assets were approximately equal to their fair values
with the exception of a parcel of land that had a fair value $650,000 greater than its carrying
value.
The terms of the acquisition were that Code plc would issue 2 new shares in Code plc for
every 5 shares acquired in Dole plc and would pay $1.20 for each share acquired. In addition
Code plc would issue a $100 7% Unsecured Loan Note for every 390 shares acquired
The Code plc shares had a market value as at date of acquisition of $2.80. Code plc has
decided to measure the non-controlling interest at fair value with the Dole plc share price
being a reasonable indication of fair value
At 31 December, 2014 the retained earnings of Code plc and Dole plc were $2,690,000 and
$1,780,000 respectively. Goodwill is not impaired
At what amount should the non-controlling interest be shown in the consolidated statement
of financial position for the Code plc group as at 31 December, 2014? (Answer to the nearest
$000)
This is the answer:
1,050,000 x 82.60 = 2,730,000
retained earnings (1,940,000 - 1,760,000) x 35% = ( 56,000)
nci @ 31 December 2014 1,050,000 x 82.60 =
2,730,000
retained earnings (1,940,000 - 1,760,000) x 35% = ( 56,000)
I have calculated this:
1,050,000 x 82.60 = 2,730,000
but i cannot deal with the other information given in the question. I have tried relating to the explanation in the lectures and notes but to no avail. This is unlike the first question on the online test where i was able to remove the extra depreciation and therefore adjust the fair value of NCI aquisition.
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need help with an online question
OK, so you've got the NCI at fair value at acquisition, so that's a good start. I think your 82.60 should be $2.60 but that's a minor point.
To this you then need to add on the share of post acquisition profits, which is where the answer is right but looks wrong?!?!?! I think the (56,000) is correct but I think it should be calculated as follows:
35% x (1,780,000 RE @ y/e - 1,940,000 RE @ acqn) = (56,000)
Hope that helps clear it up.
Thanks
yes that is easy and i miss that. I guess that the other parts of the question does not affect REtained earnings
. Am I right?
Don't forget that the post-acquisition retained earnings will also be used in the group retained earnings calculation where the group will record its share.
Thanks
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