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Solve this problem With full explain of methods please

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA SBR Exams › Solve this problem With full explain of methods please

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • May 23, 2017 at 9:41 pm #387672
    sarmadkhalid45
    Participant
    • Topics: 8
    • Replies: 19
    • ☆

    Freddie
    The following question looks at disposal in the context of the i/s.
    On 1 January four years ago, Freddie acquired 80% of the shares of Mercury for $500,000. Mercury had share capital of $100,000 (nominal $1 each) and had reserves of $200,000. No shares have been issued since acquisition. At acquisition, the fair value of the net assets was $320,000. The fair value adjustment related to inventory, that was sold immediately after the acquisition.
    Goodwill has been tested for impairment at each year end since acquisition. No goodwill has been impaired since then. It is the group’s policy to value the non-controlling interest at fair value which at acquisition was $103,000.
    The income statements for the year ended 31 December in the current year are as follows:
    Freddie Group Mercury
    $’000 $’000
    Revenue 900 240
    Operating costs (500) (100)
    ___ ___
    Operating profits 400 140
    Dividend income 80 –
    Finance costs (20) (10)
    ___ ___
    Profit before tax 460 130
    Tax (110) (30)
    ___ ___
    Profit after tax 350 100
    ___ ___
    Interim dividend paid 70 20
    Opening retained earnings at the current year start 5,000 340
    Freddie sold half of its holding in Mercury on 1 July in the current year. Freddie received cash proceeds of $430,000, but this has been recorded in a suspense account on the statement of financial position. The group accounts of Freddie group have been prepared and are presented above. However, the accounts of Mercury have not yet been consolidated because of the mid-year disposal.
    Freddie retains influence over Mercury via its remaining shareholding. The fair value of the associate retained is measured at $420,000 at disposal.
    Mercury paid the interim dividend in cash on 17 April in the current year prior to the disposal.
    Required:
    Prepare the consolidated income statement for the year ended 31 December.

    May 26, 2017 at 7:37 am #388145
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    I can deal with a specific aspect of the question where you may be having difficulty but I’m not going to answer a full question on your behalf sorry.

    If you let me know what particular aspect is causing you difficulty then I’ll be able to help.

    Thanks

    May 26, 2017 at 3:08 pm #388278
    sarmadkhalid45
    Participant
    • Topics: 8
    • Replies: 19
    • ☆

    I am having difficulty in associate part ..which happen in july….

    May 30, 2017 at 9:53 am #388948
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    On the disposal of half the shares on 1 July we now have an associate for the last six months of the year and so will equity account for it. We also have a disposal leading to a group profit/loss on disposal calculation.

    The associate is a one line item calculated as 40% of the PFY, pro-rated for six months.

    The group profit/loss on disposal is calculated as:

    Proceeds X
    + FV investment still held X
    +NCI X
    – N.A. at disposal (X)
    – Goodwill (X)
    X

    Hope this helps. Try calculating the figures above and let me know how you get on.

    Thanks

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