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- This topic has 2 replies, 2 voices, and was last updated 7 years ago by furqan.90.
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- December 3, 2016 at 8:14 am #353319
Hi,
Why was tax not subtracted from the gain in the group and also in this question a contingent payment was agreed to be made two years later but it isnt discounted in the past paper.
Kindly helpQuestion
Kutchen had purchased an 80% interest in Niche for $40 million on 1 April 2014 when the fair value of the identifiable net assets was $44 million. The partial goodwill method had been used to calculate goodwill and an impairment of $2 million had arisen in the year ended 31 March 2015. There were no other impairment charges or items requiring reclassification. The holding in Niche was sold for $50 million on 31 March 2015 and the
gain on sale in Kutchen’s financial statements is currently recorded in other components of equity. The carrying value of Niche’s identifiable net assets other than goodwill was $60 million at the date of sale. Kutchen had carried the investment in Niche at costAnswer of working in past paper
Gain/(Loss) in group financial statements on sale of Niche
Sale proceeds
50
Less
Share of identifiable net assets at date of disposal (80% x $60 million)
(48)
Goodwill $(40m – (80% of $44m) – impairment $2m)
(2·8)
–––––
Loss on sale of Niche
(0·8)
Post-acquisition profits
($60m – $44m) x 80% – impairment $2m
10·8
–––––
Profit reported in OCE to be transferred to retained earnings
10
–––December 4, 2016 at 6:12 pm #353780Hi,
The contingent consideration is not discounted as the value of the share is effectively the value of the discounted future cash flows, so there is no requirement for any discounting of the shares.
Tax is never deducted on disposal in the group accounts as the gain calculated is based on substance and not the legal form.
Thanks
December 4, 2016 at 11:00 pm #353855Got it Thanks a lot!!
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