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Hi Mike
Are there lectures for chapters 17-31? I couldn’t find them or are there only those 16 chapters? Thanks.
It wouldn’t have taken you 2 minutes to check through this page and you’ll have seen this question asked multiple times!
The remaining chapters with the exception of financial instruments are all relatively easy and available for self study.
I do need to record some more and hopefully shall do so in the coming close season, but that won’t be in time for June 2015
Dear Mike,
Question about your revision lecture – Simple Groups part 3 Example 1, when Ausra bought 75% of the Danute.
Question abour subsidiary Fair Value at DoA. We/You calculate it as share capital + premium + retained earnings + fv adustments, etc. and come to 146,000.
Why is FV of the subsidiary at DoA not just number of Danute shares (80,000) by their market value at DoA (2.2) = 176,000?
Thank you for the answer and sorry if its silly question.Because the market share of a company is driven not by asset values but by shareholder / investor speculation. Basically the stock market is a casino with gamblers investing in shares of companies hoping that the value of those shares will increase.
The company makes a bullish announcement that it looks like the company may possibly be hopefully about to sign a draft agreement with President Assad and the gamblers move in and buy the shares on the open exchange from people that have decided that they have made enough profit from that investment and, if someone wants to pay them silly money, then they are prepared to sell
Then the rumour is found to have no basis in fact so the gamblers sell and the original holder is able to reacquire the shares for an amount that represents neither underlying assets nor profit forecasts not historical projected results nor ….
The share price is reflective purely of market sentiment
And that’s why the fair value of the subsidiary has nothing at all to do with the number of shares multiplied by the individual share price as quoted on the stock exchange
Ok?
Dear Mike,
Sorry, not OK ), becasue you are right about casino etc, but the fact that market reflects the true value is fundamental in business valuation. If the market share value had been too high, market participants would have made the same calculations of fair value (share capital + premium + fv adjustments, etc) and the price of the shares would go down so that the market value of the subsid. shares is 146,000.
IFRS 13 defines fair value as „the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date“. Isn’t that the market value?
Even in your leacture the fair value of NCI is also based on the market value of the shares.
Your first paragraph is nonsense! Absolute, utter nonsense!
Market value of shares is determined in the minds of the buyer and the seller
It’s got very little to do with underlying asset values. The asset values may provide a start point, but so too could projected earnings figures, or historic trend of earnings per share, or market sentiment about the quality of management, or disillusionment about the board’s conservatism re the company dividend policy, or the emergence of new strong competition.
On today’s news I hear that Ryanair share price has risen 4% after the publication of their results showing a 60% increase in profits year on year.
All manner of things affect the market price of a company’s share on the market
Sorry!
Thanks Mike, I did have a quick look but couldn’t find similar question, I guess I didn’t look hard enough.
….All manner of things affect the market price of a company’s share on the market…
That’s right but is there a better way?
a) Even the example itself states in p.8: “The directors valued the nci investment on a fair value basis using the market value of the Danute shares as a fair measure”. If they value NCI using market value then it must be logical to measure the fair value of the subsidiary on the same basis. Otherwise there is no consistency and logic.
b) Isn’t IFRS itself in several places reffering to the quoted/tradeable market value as a main way to determine the fair value?
Nothing to be sorry about ). Far from saying you are wrong.
Dear Mike, just read your recent asnwer on IFRS 13 in another topic:
..The three methods are ranked in preferential sequence. For first choice we would turn to the market approach and arrive at a fair value that way…
Why is here market approach first choice, but when we measure fair value of a susbidiary you say market value is noncense?
Could it be that the difference is that there are 2 fair values of the subsidiary:
1) market value that includes “intangibles” like you say – market expectations, quality of managament, competitors, etc.
2) but for consolidation purposes we measure fair value of only ‘identifiable’ net assets in the subsidiaty’s balance sheet.
Then in fact the first market value is what we pay for the subsidary (if there is traded market shares, that is) and the difference between the 2 fair values is the goodwill. Can that be the right point?
Really confusing issue it is.Market value here (in the post that you quote where a different question asked about fair valuation preferences) is referring to the resale value of assets!
Your original post suggests that fair value is the same as market capitalisation (number of shares x market price per share) whereas I’m contending that fair value is the sum of share capital + other reserves as at date of acquisition + fair value adjustments
Where the subsidiary has assets carried at a value and we, in our own minds, realise that there is a symbiosis available here where the value TO US of those assets differs from the value carried in the records of the subsidiary, that fair value adjustment is one that we will account for in our offer to buy the company’s shares from its existing shareholders.
But those shareholders won’t know what underlying influences dictated the way we value their company
You mention in an earlier post that market participants will make the fair value adjustments for themselves. On what grounds do you anticipate that the market participants will be making their own fair value adjustments. What information will they have? What knowledge do they have of our own intentions for the future use of the subsidiary’s assets? How will they know that it’s the subsidiary management that we are looking to acquire rather than the net assets – fair valued or otherwise
However you want to argue this point, the point remains the same in that the wording in Ausra and Danute is absolutely typivcal of the wording in a P2 consolidation questions (and in F7 consolidation questions)
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