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Hi Tutor,
I have a quick question about the consolidated accounts. I was looking at question 3 of the September/December exam paper and I don’t understand one adjustment.
The information states that the following an impairment review, consolidated goodwill is to be written down by $3 million as at 30 June 2015(reporting date),
I don’t understand why this gets completely reduced by net assets at reporting date and post acquisition of subsidiary and not in the Nci and group retained earnings calculation.
I.e why is impairment of $3 million not taken to the Nci working so the 25% of impairment is taken off from there and the remaining 75% is taken on from group retained earnings.
If you look at working (iv) in the printed solution, you’ll see that $3,000 goodwill impairment has been deducted from the subsidiary post acquisition retained earnings and then our 75% has been applied to the resultant figure of 3,200
The answer could have, instead, taken 75% of the adjusted figure for the subsidiary post acquisition retained earnings and then, separately, deducted just our share of the goodwill impairment
” and not in the Nci and group retained earnings calculation.”
I’ve just explained how it IS taken into account in the consolidated retained earnings calculation
As for the nci, working (v) in the solution shows the nci being credited with their share of the subsidiary’s post-acquaiition profits for this year
But those profits of $3,200 have been arrived at after deducting the goodwill impairment
Is that any better?
@mikelittle said:
If you look at working (iv) in the printed solution, you’ll see that $3,000 goodwill impairment has been deducted from the subsidiary post acquisition retained earnings and then our 75% has been applied to the resultant figure of 3,200The answer could have, instead, taken 75% of the adjusted figure for the subsidiary post acquisition retained earnings and then, separately, deducted just our share of the goodwill impairment
” and not in the Nci and group retained earnings calculation.”
I’ve just explained how it IS taken into account in the consolidated retained earnings calculation
As for the nci, working (v) in the solution shows the nci being credited with their share of the subsidiary’s post-acquaiition profits for this year
But those profits of $3,200 have been arrived at after deducting the goodwill impairment
Is that any better?
Assuming I had made the error of not deducting it from the post acquisition reserves of the net assets of the subsidiary but then carried on for the remaining workings.
I would get goodwill to be 5,000 still.
Nci = fv of Nci at acquisition = 15000
+ Nci share of post acquisition reserves = 25% x 6200 = 1550
Less Nci share of impairment = -25% x 3000 = -750
Nci = 15800Group retained Earnings = 50200
+ Parents share of post acquisition reserves = 75% x 6200 = 4650
– Unwinding on deferred consideration = -900
– Purp = -600
+Gain on investment = 1700
– parents share of impairment = 75% x 3000 = -2250
Group retained earnings = 52800Would this be acceptable and I was worried if I go wrong using this method it will lose more marks or should I follow the way it is shown in the exam answers.
“+ Nci share of post acquisition reserves = 25% x 6200 = 1550”
No! The subsidiary retained profits need to be adjusted for all those other subsidiary adjustments like pups. extra depreciation and so on to arrive at a post-acquisition figure (not adjusted for goodwill)
From that we can calculate the nci share of those post acq profits, add that figure to nci as at date of acquisition and then, from that sub-total we deduct the nci share of the goodwill impairment
Watch some of the past exam question videos that I recorded showing how the nci is calculated (they’re called “F7 Revision” on the index of the F7 home page)
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