Other comprehensive income

What has this got to do with other comprehensive income?

I’m lost

Where a question says that the nci is to be valued on a full or fair value basis, all that’s telling you is that the basis is not proportional

Somewhere in the question it will (most probably) say that the subsidiary share price immediately before the acquisition by the parent was $x.xx and that this is to be the taken as representing fair value

Now, multiply the number of shares in the subsidiary (that are NOT acquired by the parent) by this $x.xx and there you have the value of the nci investment

There are examples of this in the course notes and in lectures – have you followed them?

3a(iii) – where loan notes are issued with an option for the lender to convert the loan note into shares at the maturity date, these are called ‘compound instruments’ and we have to accept that part of the loan is, in fact, equity because of the option to convert into equity

The way we find out exactly how much of the note is equity is by calculating the present value of the payments involved in servicing the loan

So each year when we pay interest at 5% calculated on the face value of the loan – in this case it’s 5% x $30,000,000 = $1,500,000 – we can find TODAY what is the present value of that future interest payment discounted at the interest rate of 8% (the rate of interest that we would have had to pay to borrow the money if we had not included a conversion option

At the end of year 1 (and 2 and 3) we shall pay $1,500,000 but at the discount rate of 8% the present day value of these payments is $1,388,888, $1,286,008 and $1,190,748

In addition, we are faced with having to pay the face value of the loan itself of $30,000,000 in 3 years’ time so that figure, discounted for 3 years is $23,814,967

That gives us a present value for the payments related to the loan of $27,680,611. In the exam the examiner will not expect this level of detail so gives the discount factors that are to be used.

In this question you are given the factors for the 3 years as .93, .86 and .79 and, when you apply those factors to the cash flows, you arrive at a (less accurate) present value of $27,570,000

Well, if $27,570,000 relates to the debt element, then $30,000,000 – $27,570,000 must be the equity element

Is that better for you?

Have you tried the mini-exercises towards the end of the course notes? There are examples there of this same problem lifted from past exams!

$6,900 and $750 are the depreciation and the amortisation for this year

The figures for depreciation and amortisation in the trial balance are the brought forward amounts from last year:

‘Accumulated depreciation/amortisation at 1 April 2015:
buildings 5,000
plant and equipment 36,700
patent 3,000’

and the question specifically states that ‘No depreciation/amortisation has yet been charged on any non-current asset for the year ended 31 March 2016.’

The $6,900 is calculated as follows:

Plant cost (per trial balance) $82,700
Accumulated depreciation $36,700
Net book value is therefore $46,000 and,

according to the question:

‘Plant and equipment is depreciated at 15% per annum using the reducing balance method.’

So 15% x $46,000 is $6,900

You do the equivalent calculation for the patent!

I find this very difficult to believe that, after the loads of times that I have gone through the explanation of this topic, students still come back with ‘I don’t understand’!!!!

Open up 2 T accounts – one for deferred tax and one for current tax

In the deferred tax account debit side …

3,700 carried forward (20% x $18,500)

Credit side

4,800 brought forward (per trial balance)

So there’s a missing figure on the debit side in the deferred tax account and that needs to be double entered.

Dr deferred tax 1,100
Cr current tax 1,100

In the current tax account debit side …

1,550 brought forward (per trial balance)
11,400 carried forward

Credit side

1,100 transferred from deferred tax account

That leaves us with a missing figure of 11,850 on the credit side to make the account balance and that needs to be double entered

Dr statement of profit or loss 11,850
Cr current tax account 11,850

OK?

IF you had to pay $1,500,000 in one year’s time and you could invest money TODAY at a rate of 8% interest, how much would you have to invest TODAY to be sure that you have $1,500,000 in one year’s time?

Answer that question for me and you can then apply the principles to the rest of the scenario

OK?