Summary Notes 2

Question 1

What are the double entries for consideration paid today?

Answer 1

Always record consideration at its FV at date of acquisition:

Cash: Amount paid today

Dr Investment
Cr Cash

Shares:
No. of shares issued x share price at acquisition

Dr Investment
Cr Share Capital/Premium

Question 2

What are the double entries for deferred consideration?

Answer 2

Cash:
PV of future cash flow

Dr Investment
Cr Liabilities/Payable

Shares:
No. of shares issued x share price at acquisition

Dr Investment
Cr Shares to be issued

Question 3

What are the double entries for contingent consideration?

Answer 3

At FV (always given in Q)

Cash:
Dr Investment
Cr Provision/Payable

Shares:
Dr Investment
Cr Shares to be issued

Question 4

What happens to any cash consideration recognised at PV?

Answer 4

Any cash consideration recognised at PV will need to be unwound and a finance cost recognised each year until payment

Question 5

How is the contingent cash consideration calculated?

Answer 5

The FV of contingent consideration will always be given in the question and is calculated after taking into account:

• time value of money
• probability of S hitting target

Question 6

What are the double entries for the unwinding of cash consideration?

Answer 6

Contingent cash consideration:

The payable must be subsequently unwound, with the unwinding recognised as a finance cost

Dr Finance Cost
Cr Payable

Question 7

How do you account for adjustments to contingent consideration or goodwill?

Answer 7

Contingent: If there is a change in the FV due to a change in probability of S hitting the target, this change is recognised separately in the CSPL from the finance costs

Goodwill: The only time that goodwill would be adjusted is if it was discovered within 12 months of acquisition that the fair value should have been different and it related to conditions as at the date of acquisition

Question 8

How do you treat the FV of net assets of a subsidiary?

Answer 8

S’s identifiable assets, liabilities and contingent liabilities at acquisition must be brought in at FV. This includes any internally generated intangibles and contingent liabilities of S that it has not recognised in its own individual financial statements.

Question 9

How do you treat provisional FVs of net assets?

Answer 9

• Provisional FVs are allowed to be used in the preparation of the consolidated financial statements at the first year end post acquisition
• If these provisional FVs are subsequently confirmed, the treatment of this FV change will depend on when the confirmation was received:

Within the measurement period (less than 12 months of acquisition):

• Do recalculate goodwill using the revised FV
• Restate comparatives

Outside the measurement period (more than 12 months from acquisition):

• Do not recalculate goodwill (leave it using the provisional FV)
• Do not restate comparatives (treat as a change in estimate per IAS 8)

Question 10

How do you calculate the dividend paid to NCI (consolidated statement of cash flows)?

Answer 10

T-Account:

DR;
NCI eliminated on disposal of sub
Dividend paid to NCI (Balancing figure)
C/f

CR:
B/f
NCI% of S's profit (from CSPL split)
NCI% of other comprehensive income (from CSPLOCI split)
NCI added on acquisition of sub

Question 11

How do you calculate the investment in associate (consolidated statement of cash flows)?

Answer 11

T-Account:

DR:
B/f
Share of profits of associate (CSPL)
Share of other comprehensive income of associate (CSPL)

CR:
Dividend received from associate (balancing figure)
C/f

Question 12

How do you calculate net cash to acquire sub?

consolidated statement of cash flows

Answer 12

Less: Cash paid
Add: Cash acq’d with sub
————–
Net cash to acquire sub

Question 13

How do you calculate new cash from disposal of sub?

consolidated statement of cash flows

Answer 13

Add: Cash received
Less: Cash disposed of with sub
——————————
New cash from the disposal of sub

Question 14

Where do you show cash flows associated with acquisitions and disposals of subsidiaries?

Answer 14

Cash flows associated with acquisitions and disposals of subsidiaries are shown under investing activities

Question 15

What should you be careful of when looking at the movements between b/f and c/f assets and liabilities?

Answer 15

Compare like with like when working out cash flows during the year

• On acquisition add the asset and liability balances at the date of acquisition to the b/f balances in the CSFP in the question
• On disposal deduct the asset and liability balances at the date of disposal from the b/f balances in the CSFP in the question