CSFP continued

Question 1

What is double entry for transferring goods between group members? How do you calc PURP

Answer 1

If P sells to S- Dr group RE Cr group inventory (relates to group)
If S sells to P- Dr sub RE Cr group inventory
(partly relates to sub and group)

(decrease RE and decrease inventory)

PURP= Profit x Unrealised % (closing inventory left)

Question 2

How do you treat intragroup transfer of NCA? Give double entry

Answer 2

Treat as it has not occurred- no profit/depreciation and create PURP. If parent seller increase group RE and if sub seller increase sub RE

NCA PURP= carrying amount after transfer - carrying amount if transfer didn’t take place

Dr R/E of seller
Cr NCA

Question 3

What are the 2 alternative scenarios for cash consideration? Give double entry

Answer 3

Immediate cash paid-
Dr cost of investment and Cr cash

Deferred cash-
Dr cost of investment and Cr Liability
but unwind-
Dr Finance Cost and Cr Liability

Question 4

What are the 2 alternative scenarios for share consideration and give double entry

Answer 4

Immediate issue- Dr cost of investment Cr SC Cr SP

Deferred- Dr cost of investment Cr shares to be issued

Use MV at acquisition date

Question 5

What are the 2 alternative scenarios for contingent consideration and give double entry? What is it

Answer 5

It is the amount payable in future for purchase depending on events such as performance e.g. hitting sales target

Contingent cash- Dr cost of investment Cr provision

Contingent Shares- Dr cost of investment Cr shares to be issued

Question 6

What does IFRS3 require and give definitions

Answer 6

Acquirer should recognised identifiable assets, liabilities and contingent liabilities

Identifiable assets are those that existed in acquired entity at date of acquisition

Identifiable liability is an event without much certainty and should be disclosed (worse than provision)