- This topic has 3 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
Hello Sir,
The coming question did not tell whether the relevant information of the item (iii) have been taken into consideration at the reported S.F.P or not, but the answer assumed that it is not calculated at the financial assets figure of the non current asset, as following:
On 1 April 2013, Polestar acquired 75% of the equity share capital of Southstar. Southstar had been experiencing difficult trading conditions and making significant losses. In allowing for Southstar’s difficulties, Polestar made an immediate cash payment of only $1·50 per share. In addition, Polestar will pay a further amount in cash on 30 September 2014 if Southstar returns to profitability by that date. The value of this contingent consideration at the date of acquisition was estimated to be $1·8 million, but at 30 September 2013 in the light of continuing losses, its value was estimated at only $1·5 million. The contingent consideration has not been recorded by Polestar. Overall, the directors of Polestar expect the acquisition to be a bargain purchase leading to negative goodwill.
Statements of financial position of (Polestar) as at 30 September 2013 :
Assets
Non-current assets
Financial asset: equity investments (note (iii)) 16,000(iii) Polestar has recorded its investment in Southstar at the cost of the immediate cash payment; other equity investments are carried at fair value through profit or loss as at 1 October 2012. The other equity investments have fallen in value by $200,000 during the year ended 30 September 2013.
the answer:
Financial asset: equity investments (16,000 – (13,500 cash consideration) – 200 loss) = 2,300So, there is no evidence that the 200 loss have not been calculated at the amount of 16,000, furthermore, (at the answer) the amount of investment (13500) it is not presented at the SFP .
Thanks
Surely the question is clear enough:
“other equity investments are carried at fair value through profit or loss as at 1 October, 2012. The other equity investments have fallen in value by $200,000 during the year ended 30 September, 2013.”
The other investments are carried at their 1 October, 2012 valuation and we’re preparing the financial statements as at 30 September, 2013
“and we’re preparing the financial statements as at 30 September, 2013”
The financial statements has already been prepared at the question, and it should be supposed that valuation is included at the reported figure, unless otherwise indicated.
Except, we have to assume the opposite.Also, the investment amount is not included at the answer under the assets ?
“Below are the summarised draft financial statements of both companies.”
With the emphasis on DRAFT
All exam questions are like this – they would be impossible otherwise
The examiner will give you a set of draft financial statements and then 5 or 6 paragraphs of matters to be adjusted
In fact, more often than not, the examiner uses the expression “The summarised statements of financial position of the two companies as at 31 March 2012 are:”
“Also, the investment amount is not included at the answer under the assets ?”
Well, they are in my version of the answer!
“Financial asset: equity investments (16,000 – (13,500 cash consideration) – 200 loss)”
That $13,500 cash consideration is excluded from the assets because it’s an integral element of the goodwill calculation and is therefore included within the goodwill figure
Clear now?
- You must be logged in to reply to this topic.