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Pup -NCI post acquisition profit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Pup -NCI post acquisition profit

  • This topic has 1 reply, 2 voices, and was last updated 10 months ago by P2-D2.
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  • Author
    Posts
  • August 30, 2021 at 12:06 pm #633510
    alawi sayed
    • Topics: 138
    • Replies: 148
    • ☆☆☆

    Hello Sir,

    Why in the following exam question (I could not copy the question) the PUP at 240 k was not adjusted in the post acquisition profit of the NCI when we want to distribute the profit for the year in profit and loss

    since the Journal entry is DR Retained Earnings of Parent
    CR Inventory of the subsidiary

    the question is from Financial Reporting
    March/June 2021 exam (20/21 ,

    Answer
    Gold Co
    (a) Goodwill
    $’000 $’000 $’000
    Consideration:
    Deferred cash (90% x 16,000 x $2·42 x 0·9091) 31,680
    Shares (90% x 16,000 x 3/5 x $8·40) 69,120 ––––––––
    100,800
    Non-controlling interest (NCI) (10% x 16,000 x $3·50) 5,600 ––––––––
    106,400
    Less: FV of net assets at acquisition
    Equity shares 16,000
    Retained earnings:
    At 1 October 20X1 56,000
    1 October 20X1–1 January 20X2 (9,920 x 3/12) 2,480 58,480 –––––––
    Fair value adjustments:
    Plant 2,600
    Contingent liability (850) –––––––
    (76,230) ––––––––
    Goodwill 30,170 –––––––– ––––––––

    b) Consolidated statement of profit or loss for the year ended 30 September 20X2
    $’000
    Revenue (103,360 + (60,800 x 9/12) – 5,400 (W1)) 143,560
    Cost of sales (81,920 + (41,600 x 9/12) – 5,400 (W1) + 240 (W1) + 650 (W2)) (108,610) ––––––––
    Gross profit 34,950
    Distribution costs (2,560 + (2,980 x 9/12)) (4,795)
    Administrative expenses (6,080 + (3,740 x 9/12)) (8,885)
    Share of profit from associate (3,000 x 40%) 1,200
    Finance costs (672 + 136 (W3) + 2,376 (W4)) (3,184) ––––––––
    Profit before tax 19,284
    Income tax expense (4,480 + (2,560 x 9/12)) (6,400) ––––––––
    Profit for the year 12,886 ––––––––
    Profit attributable to:
    Owners of the parent 12,207
    NCI (W5) 679 ––––––––
    12,886 ––––––––
    Workings
    W1 – Intercompany and PUP
    Post-acquisition sales = ($600 x 9) = $5,400
    PUP = (1,200 x 25/125) = $240
    W2 – FV depreciation on plant = ($2,600/3 x 9/12) = $650
    W3 – Convertible loan – calculate liability component
    $’000 DF 8% $’000
    Liability:
    Interest (10,000 x 6%) = 600 3·993 2,396
    Principal 10,000 0·681 6,810 ––––––
    Liability 9,206 –––––– ––––––
    $’000
    Interest charge to PL:
    ($9,206 x 8%) = 736
    Interest already charged (600) ––––
    136 –––– ––––
    W4 – Deferred cash consideration
    Unwinding of discount on deferred consideration (see goodwill calculation): $31,680 x 10% x 9/12 = $2,376
    W5 – NCI
    $’000
    Silver’s profit for the year ($9,920 x 9/12) 7,440
    FV Depreciation (W2) (650) ––––––
    6,790 ––––––
    NCI share 10% 679

    September 1, 2021 at 7:12 pm #633851
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6119
    • ☆☆☆☆☆

    Hi,

    If the parent is the seller then we adjust the parents profits/retained earnings and not those of the subsidiary. The NCI only looks at the post acquisition profit of the subsidiary so the PUP adjustment will not impact this calculation given that we are adjusting the parent’s figures.

    Thanks

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    Posts
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