in the question 1(a)(i) Zennor (in the answer sheet), i notice that under the heading of " Calculation of profit on disposal ", it says that "e.g that the proceeds received have not been measured at fair value as required by IFRS 10 Consolidated Financial statements......................................"
is it possible to provide me a simple example ? i can't think any of the examples that a parent company will measure at the fair value in the event of disposing a subsidiary.
In addition, if i'm not wrong i have not confronted this kind of situation while doing P2 Corporate Reporting.....
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Stow Group, December 2013
(Please make sure that you write out the whole sentence and not just an extract - I had to find the published answer to find the whole sentence to answer this.)
It says "There is a risk that the profit on disposal has NOT been accurately calculated, e.g. that the proceeds received have NOT been measured at fair value as required by ...."
So it's saying that the disposal proceeds should be measured at fair value - which is correct - i.e.:
- cash on the day of disposal is cash
- deferred consideration will be discounted to present value
- contingent consideration ("earnout"), which may be based on a number of variable inputs, unique risk profiles and potentially complicated pay-off structures, will be measured at an estimated fair value.
You may not have met this for disposal proceeds but it is no different to calculating the cost of investment in a subsidiary at fair value (e.g. for the calculation of goodwill on acquisition).
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