solving associate question from BPP kit

Hi,

I’m very well, thanks. Am looking forward to the cricket World Cup final tomorrow.

I’ve not got he updated SBR materials just yet, but I’ve looked in the revision kit from the last session (I’d have thought it hasn’t changed much) but cannot find the question you refer to.

If you miss the items then you would lose the marks for the calculations (2 or 3 marks possibly) but then there would be continuity marks for where the numbers feed through to. i.e. post-acquisition profits. It is therefore key that you include workings and reference them appropriately so that the marker can see what you have done.

Once I get the new materials then I’ll get back to you on the first part of your question.

Thanks

I’ve managed to locate the question and can answer it as follows:

Fair value adjustment – the increase of $400,000 is recorded at acquisition in the net assets working. It is then depreciated from 1 Jan X0 to 31 Dec X5, so over a period of 6 years. Only the buildings are depreciated, and these make up 50% of the $400,000 at $200,000. The buildings are depreciated over their remaining useful life, so given that they were depreciated over 50 years initially and 10 years have passed, then there must be 40 years left. Based on all of this the depreciation charge is $30,000 ([$400,000 x 50% / 40 years] x 6 years). The $30,000 is then deducted from the reporting date column in the net assets working.

PURP – The calculation is based on cost strucutres, using a mark-up of 25% on cost. So if the cost is $100, then the revenue will e $125 (i.e. $100 + [25% x $100]) and the profit $25. Expressed as a percentage the profit is 25/125 of the total sales. If we then apply the 25/125 to the sales value of the goods held at the reporting date of $100,00 then the PURP is $20,000.

Hope that helps.

New Zealand were unlucky but it was great to see England win!

Thanks

Hi,

Could you please explain where impairment of 60,000 comes?

Thank you,