Consolidated Statement of Financial Position

Question 1

What is the pro-forma for Consolidated SFP’s

Answer 1

Non Current Assets
Goodwill (W3)
Tangible (100% P+S)
less Cost of Investment

Current Assets
Inventory (100% P+S )
Receivables (100% P+S - IC transaction - cash in transit)
Bank & Cash (100% P+S + cash in transit)

Share Capital (P only)
Share Premium (P only)
GRE (W5)
NCI (W4)

Non-Current Liabilities (100% P+S)
Current Liabilities (100% P+S less IC transactions)

Question 2

W1 and W2

Answer 2

W1 Group Structure

W2 Net Assets

Share Capital
Share Premium
Retained Earnings
FV adjustment
(less depreciation)
(less PUP (upstream))

Question 3

W3

Answer 3

W3 Goodwill

Cost of Investment
FV of NCI
(less FV of net assets @ acq)
= Goodwill on acquisition

(less impairment)
= Goodwill

Question 4

W4

Answer 4

W4 NCI

FV of NCI
NCI% of post-acq profits
less NCI% of impairment (FV Method only)
= NCI

Question 5

W5

Answer 5

W5 GRE

100% Parent Retained Earnings
Parent % of post-acq profits
less parent % of impairment
(less PUP (downstream))

Question 6

What is the difference between purchased and negative goodwill?

Answer 6

Purchased goodwill is the difference between the purchase price and the FV of the assets, liabilities and contingent liabilities. This is recognised at cost and reviewed annually for impairment.

Negative goodwill arises when the purchase price is less than the fair value of the net assets required, which should be credited directly to P/L.

Question 7

What are the two methods for Goodwill?

Answer 7

Fair Value Method

Proportion of net assets method - Here, the NCI’s holding is measured by calculating their share of the FV of Net assets at acquisition (W2).

Question 8

What are the impacts of goodwill impairment on each method?

Answer 8

FV:

Dr NCI (w4) to reduce by NCI % of impairment loss
Dr GRE (w5) to reduce by the parent's % of impairment loss
Cr Goodwill (w3) by the full impairment loss

Proportion of Net Assets

Dr GRE (w5) by full impairment loss
Cr Goodwill (w3) by the full impairment loss

Question 9

How are intra group transactions cancelled out?

Answer 9

Dr Payables
Cr Receivables

Dr Bank
Cr Receivables

Question 10

How is PUP accounted for?

Answer 10

Closing Inv x mark up/100+ mark-up
Selling price x margin %

P sells to S Downstream:

Dr W5 GRE
Cr Inv - SFP

S sells to P Upstream:

Dr W2 Net Assets
Cr Inv - SFP

Question 11

What is the definition of fair value?

Answer 11

The amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties.

Question 12

When does IFRS3/IFRS10 say fair value of subs should be adjusted?

Answer 12

Before goodwill is calculated

Question 13

How should the following elements fair values be calculated?

Tangibles
Raw materials
Finished goods
Long term payable

Answer 13

Tangibles - Market Value

Raw materials - Replacement cost

Finished goods - Selling price minus profit allowance

Long term payable - Present value of future cash flows

Question 14

How is depreciation calculated in W2?

Answer 14

FV adj
——— x no of yrs owned sub
Remaining UL

Question 15

How is depreciation presented in W2?

Answer 15

Only deducted from SFP, not acquisition column

Question 16

How is PUP presented in W2?

Answer 16

Only deducted from SFP, not acquisition column

Question 17

How does IFRS3 treat direct costs of acquisition, such as professional fees?

Answer 17

No direct costs may be capitalised as part of the investment. All direct costs of acqusition should be expensed.

Question 18

What is contingent consideration?

Answer 18

An obligation of the purchaser of an asset to transfer additional assets or equity to the seller if certain conditions are met.

It also may give the buyer right to return of consideration if conditions are not met.

Question 19

How is PUP on Non-current assets accounted?

Answer 19

Any profit made on the transfer of non-current assets needs to be cancelled out and the asset reduced to cost to the group.

Question 20

How do we work out PUP on non-current assets?

Answer 20

Step 1 - who sold to who?

Step 2 - profit element (selling price - CV = profit)

Step 3 - depreciation element (profit / remaining UEL)

Step 4 - remaining profit (step 2 - step 3)

Upstream
Dr Net Assets W2
Cr PPE

Downstream
Dr GRE W5
Cr PPE

Question 21

How do we calculate share for share exchange (for cost of investment W3)?

Answer 21

No of shares purchased x share basis x share price of parent = value of investment

value of investment
—————————– = no of shares issued
share price of parent

Dr Cost of Investment W3
Cr Share capital of parent
(Cr Share premium of parent if extra)