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Calculation of Net Assets of Subsidiary

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47 views5 pages

Calculation of Net Assets of Subsidiary

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smaraihan24
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Calculation of net assets of subsidiary

Net assets of subsidiary

At acquisition date At reporting date


Share capital X X
Share premium X X
Retained earnings (Pre-acquisition RE) (Total at reporting date)

Pre-acquisition RE
= Total RE – Post
acquisition profit

Fair value adjustment (g/loss) X / (X) X /(X)


Extra or reduced depreciation Nil (X) / X
Unrealised profit (URP) in Nil (X)
inventory if seller is subsidiary
Total XAD XRD
Goodwill (W3)

Post-acquisition profits
= XRD – XAD

Post-acquisition profits x Controlling % Group retained earnings (W5)

Post-acquisition profits x Non-Controlling % Non- controlling interest (NCI)


(W4)
Kaplan Exam Kit 145
Philip acquired 85% of the share capital of Stanley on 1 October 20X1. The profit for
the year ended 31 December 20X1 for Stanley was $36,000. Profits are deemed to
accrue evenly over the year. At 31 December 20X1 Stanley’s statement of financial
position showed:
Equity share capital $200,000
Retained earnings $180,000
What were the net assets of Stanley on acquisition?
$___________ ,000

Working 2: Net assets of subsidiary


At acquisition date At reporting date
Share capital 200,000 200,000
Share premium –
Retained earnings 171,000 180,000
(Total)
Pre-acquisition RE
= Total RE – Post acquisition profit
= 180,000 – (36,000 x 3/12)
= 171,000
Fair value adjustment X X
Extra or reduced depreciation (X) / X
Unrealised profit (URP) in (X)
inventory if seller is subsidiary
Total 371,000 W3 380,000

Extra:
Post-acquisition profit or retained earnings or reserve
= 380,000 – 371,000
= 9,000 X 85% CI% = 7,650 W5
X 15% NCI% = 1,350 W4
Premier Kaplan Exam Kit: 419

Net assets of subsidiary


At acquisition date At reporting date
Share capital 5,000 5,000
Share premium X X
Retained earnings 3,200 4,500
(Total at reporting date)
(Pre-acquisition RE)

Pre-acquisition RE
= Total RE – Post
acquisition profit
= 4,500 – 3,900 x 4/12

Fair value adjustment (g/loss) (1,200) (1,200)


Reduced depreciation Nil 50
(1,200/8 x 4/12)
Unrealised profit (URP) in Nil (400)
inventory if seller is subsidiary
Total 7,000 7,950
Goodwill (W3)

The unrealized profit in inventory = 2,000 SP x 25/125 = 400

Post-acquisition profits
= XRD – XAD
= 950

Homework:
Party Co – Kaplan Exam Kit 430
Runner Co – Kaplan Exam Kit 431
Palistar: Kaplan Kit 427

Net assets of subsidiary


At acquisition date At reporting date
Share capital 20,000 20,000
Share premium X X
Retained earnings 18,000 24,000
(Pre-acquisition RE) (Total at reporting date)

Pre-acquisition RE = 14,000 + 10,000


= Total RE – Post
acquisition profit
= 24,000 – 10,000 x 60%

Fair value adjustment (g/loss) 12,000 12,000


- game rights
- Investment 1,000 1,900
= 7,000 – 6,000 = 7,900 – 6,000
Extra depreciation Nil (1,200)

12,000/5 x 6/12

Unrealised profit (URP) in Nil (X)


inventory if seller is subsidiary
Total XAD XRD
51,000 56,700
Goodwill (W3)

Post-acquisition profits
= XRD – XAD
= 56,700 – 51,000
= 5,700

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