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Hi Mike, Sorry originally posted this into the wrong forum! Please ignore the other posting.
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
Has the Kaplan answer kept the revaluation movement in a separate reserve – the Revaluation Reserve?
I tend to be a bit lazy in this area and include within the consolidated retained earnings even the post acquisition movement on the revaluation reserve
If Kaplan has dealt with revaluations separately then the 600 post-acquisition movement will be reflected in the consolidated revaluation reserve and the parent’s share of the subsidiary post-acquisition results will be their 80% of $1,400 and the 80% of $600 will be in that consolidated revaluation reserve
Does that do it for you?
Thanks for your quick response.
Unfortunately, I bought a BPP revision kit which reflects the ACCA answer. Wish i’d been consistent with the companies of my texts. I’ve had real trouble reconciling the different methods!
From what you have said it seems that if PPE is revalued at the reporting date rather than at acquisition then you should really reflect not in retained earnings of the parent but within Revaluation reserve / OCI.
However, NCI % of the revaluation IS in its retained earnings. Is this because it’s not permitted to show NCI % of its revaluation reserve as a separate line, so we therefore have to just include it in NCI retained earnings?? (Can you confirm / elaborate?)NCI Calculation I used…
F.V of NCI 4,500
Post acq retain (20% 2,000) 400 600 reval’n is within this 2,000 figure!!
less GW Imp % NCI (20% 500) (100)
Total 4,800 (which is correct answer stated but is the method correct or have I just fluked it?)Probably not put in a very elegant way but hope this reflects the method / reasoning i’m using and hopefully any error / misunderstanding.
‘However, NCI % of the revaluation IS in its retained earnings.’
There’s no such thing as ‘the nci’s retained earnings’!
The nci figure is an aggregate measure of the nci’s interest in the net assets of the consolidated subsidiary and we don’t split their figure into shares, premium, revaluation reserve, plant replacement reserve, retained earnings …
It’s just a single figure – “of this amount of consolidated net assets, the nci finances $XXX of it”
OK?
Yes Thank you
On a different point, If its not too much trouble, could you also explain why the Cash in transit is CR PAYABLES?? $400 DR Bank overdraft Not CR Receivables DR Bank overdraft?
Is’nt the parents statements showing receivables too high because the cash has been transferred on a later date from the subsidary?
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