- This topic has 5 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Sir
i just watched the video on parentis. why the pre acqui is 160, in the book it is 120 and why the increase in property at the acquisition date of 40 is add in the retaining earning? i watched several times and still dont understand where 160 is coming from.thx
The question that I answered was from the ACCA actual question.
You say that “according to the book …” the figures are not the same. It could well be the case that Kaplan (I assume) has changed the figures. If you get hold of a copy of the original question, I believe that there would be no confusion
OK. But why $40 of increase in property is incorporate in sub’s retaining earning.
Ah – now I understand the problem! It’s nothing to do with changed figures.
We need to find the fair value of the subsidiary net assets at date of acquisition.
Part of that fair value involves an increase of 40 over the carrying value of the property.
In the goodwill calculation in working W2, there needs to be a fair value adjustment where we notionally debit PPE and notionally credit a Revaluation Reserve as at date of acquisition.
Now the big question – does it matter to you whether this notional credit is to a Revaluation Reserve or to Retained Earnings?
If your answer to that question is “Yes, it matters to me” then I’m going to ask you “Why?”
Technically it should be treated separate from the Retained Earnings but it has no affect on the answer if you include it within Retained Earnings
Ok?
OK thanks sir. Its just I used to put it in revaluation and put the depreciation in retaining. F7 is really confusing sometimes.
That’s why I put it in retained earnings – to minimise confusion! Any fair value increase BEFORE acquisition will not appear in the consolidated figures AFTER acquisition. Why? Because it’s not post-acquisition! So treat it as a pre-acquisition retained earnings element
Any increase AFTER acquisition …. sure, put THAT into a Revaluation Account.
- You must be logged in to reply to this topic.