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Dear Sir,
Another question with regard to Question 1, working 2 (answer provided by ACCA), it says that “the gain of $20 million recognised before Trailer took control……….”, may I know what does this $20 million represent / how to get this figure?
Isn’t that the change in the net asset values between the two dates initial investment and date of later acquisition?
Dear Sir,
I tried to relook but still could not get it….. I am sorry, but I am a rather weak on this paper =(
Do you mind telling me the specific figures?
The last couple of lines in point number 1 tell us that”the fair value of the 14% holding of Trailer in Caller was $280m at 31 May, 2012 and $310m at 31 May, 2013. The second line in point 1 of the question tells us the original cost of the 14% holding ie $260m.
That investment of $260 has increased between 1 June 2011 and 31 May, 2012 and Trailer has correctly recorded the increase of $20m by debiting Investment in Caller and crediting retained earnings.
Now, when Trailer acquires control through the acquisition by Park of Caller, Trailer will have been deemed to have disposed of the 14% interest valued at $280m and repurchased it as part of the consideration paid in the acquisition of Caller as a subsidiary.
Another year goes by and the value of Trailer’s investment in Caller – 14% has increased again (first line of the second paragraph) by $30M and Trailer has debited investment in Caller and credited retained earnings.
But THAT entry needs to be eliminated because Caller is from 31 May, 2012 to be treated as a subsidiary
So, to recap, the $20M is correctly treated and needs no further adjustment but the $30m DOES need to be eliminated
Is that better?
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