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war

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › war

  • This topic has 3 replies, 2 voices, and was last updated 12 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
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  • August 16, 2012 at 7:56 am #54164
    alexacca1
    Member
    • Topics: 6
    • Replies: 11
    • ☆

    i am looking in question WAR at the end of the BPP’s textbook.
    my question is why the 50 000 USD, arising from the issue of the new shares, are deducted from the finance costs and accounted as a reduction of equity?
    indeed IAS 37 points that transaction costs of an equity transaction should be accounted for as a deduction from equity,
    but on other hand:
    IFRS says costs, directly attributable to the acquisition of a bussiness are expensed in the period

    August 20, 2012 at 5:17 pm #104398
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23315
    • ☆☆☆☆☆

    Sorry, “at the end of the BPP’s text book” is not precise enough” Give me a page reference ….but I warn you, I only have a text “for exams in 2011”

    August 21, 2012 at 12:36 pm #104399
    alexacca1
    Member
    • Topics: 6
    • Replies: 11
    • ☆

    the question was taken out of the text for 2010:

    On 1 May 20X7, War Co acquired 70% of the ordinary share capital of Peace Co by issuing to
    Peace Co’s shareholders 500,000 ordinary $1 shares at a market value of $1.60c per share. The
    [/b]costs associated with the share issue were $50,000.
    As at 30 June 20X7, the following financial statements for War Co and Peace Co were available.
    INCOME STATEMENTS
    FOR THE YEAR ENDED 30 JUNE 20X7
    War Co Peace Co
    $’000 $’000
    Revenue 3,150 1,770
    Cost of sales (1,610) (1,065)
    Gross profit 1,540 705
    Distribution costs (620) (105)
    Administrative expenses (325)* (210)
    Interest payable (70) (30)
    Dividends from Peace Co 42 –
    Profit before taxation 567 360
    Income tax expense (283) (135)
    Profit for the year 284 225
    *Note. The issue costs of $50,000 on the issue of ordinary share capital are included in this figure.

    in the solution- these costs were takesn out of the finance costs and charged against retain earnings and share premiuim

    August 21, 2012 at 7:03 pm #104400
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23315
    • ☆☆☆☆☆

    Hi, that’s better! The “directly attributable costs” referred to in the IFRS are costs such as accountancy costs and other professional costs. These used to be included within the cost of acquisition of the subsidiary, but no longer. Costs associated with the share issue itself are ideally deducted from ( debited to ) the Share Premium Account rather than included within a cost category in the Statement of Income.

    Does that help?

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