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Hi Mike
I’ve been pulling my hair out on this question all day. Just when you think you’ve cracked it another question gives you grief!
I find the Kaplin layout for showing Net assets of the Sub helps me, until I came across this question. It involves three columns At Acqu, At the Reporting Date and Post acqu.
So I happily started to fill out my table as follows…At Acq – 9000 (Shares) , 2,000 (Retained earnings), Revaluation 4,000, Total 15,000
At Reporting – 9,000 (shares), 3,500 (Ret earning), Revaluation 4,000, Depn (100), Revaluation post acqu 600, Total 8,000
Post Acqu – 1,500 (ret earn), depn (100), post acqu revaluation 600, Total 2,000
Everything works until I get to work out the parent Ret earn
Parents own 6,300
P’s share 1,600 (80% of 2,000 post in table above)
Less PUP (120)
Less unwind (135)
Less imp gw (400) (80% of 500 impairment)This is 7,245?? 480 out to the answer which is the (80% of the 600 revaluation). Can’t find anything in my Kaplin text on this. Why is this adjustment needed in parents ret earnings for the revaluation of 600 to get the right answer? Have I set up the Net assets table incorrectly?
Thanks
Please having issues for the retained earnings.
Dont know why they subtracted the 1500 from the 3500…
Getting me confused.Hi Fashola
Not sure but I think Mike would want you to open a new subject thread for this? However, I can help you with this as I’ve been alerted to your email.
$3,500 is for the period from 1 Oct 2013 – 30 Sept 2014 (reporting date) i.e the whole year!
But we have only had our Subtrak business since 1 Jan 2014. That means that from 1 Oct to the 31 Dec, we have no right to our percentage of their retained earnings, but after this we do! How much did they earn in that period? Well lets look at the P&L!!
For the whole year Subtrak made $2,000. The question says treat income and expenditure evenly through out the year. So lets do that!!
1 Jan to 30 Sept is 9 months… $2,000 x 9/12 = 1,500 (post acquisition profit!)
If they are subtracting 1,500 from the 3,500 they are therefore working out the pre acquisition retained earnings (the part we can’t take) which is required for the goodwill calculation.
I find it helpful to draw a timeline diagram when working these out. Just helps me to visualize when everything took place.
Hope this helps. If not, I’m sure Mike will reply on a new thread.
Regards
River
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