Advanced financial accounting - Lecture 45

Advanced financial accounting - Lecture 45. The main topics covered in this chapter include: cost of investment; less fair value of net assets; fair value; fair value adjustment; less dividend out of pre-acquisition profits;... Please refer to the lecture for details!

Advanced Financial

Accounting

Lec-45 Main Ahmad Farhan

Holding % = No of ordinary shares of S Co acquired by P Co

Total No of shares of ordinary shares in S Co

Minority % = 100% - Holding %

X 100

Less Fair value of net assets of

subsidiary Co accrued by P Co xxx

xxx

Fair Value

This is the value at which assets can be exchanged and liabilities can be settled between two knowledgeable willing in an arms length transactions

Cost of investment xxx Less Fair value of net assets of

subsidiary Co accrued by P Co

Net assets xxx

+/- Fair value adjustment xxx

xxx Fair value of net assets of subsidiary Co x

Pre-acquisition Post- acquisition

Ordinary

share

capital

All

-Reserves On the date

of acquisition

After the date of acquisition

Fair value of

adjustment All

-Total xxx Xxx

Holding %

of total Parent’s share Parent’s share Minority %

of total Minority share Minority share

Cost of investment in S Co xxx Less Dividend out of pre-acquisition profits xxx Less Parent’s Co share in pre-acquisition equity of S Co xxx

Less Impairment loss xxx

xxx

All reserves of parent Co xxx Add Parent’s share in post acquisition equity of S Co xxx Less Parent’s share in depreciation effect on fair

value adjustment xxx Less Impairment loss of goodwill xxx

xxx

Less Unrealized profit (In case of stop inter Co trading) xxx Less Depreciation effect on fair value adjustment xxx

Total x Minority % = Minority interest

MI share in pre-acquisition xxx

MI share in post-acquisition xxx

MI share in unrealized profit xxx Less MI share in Depreciation effect on fair value adjustment xxx

xxx

Specific Scenario

Intra group loans That will be cancelled

Intra group current accounts That will be cancelled and balance if any to

shown in good or cash in transit

Intra group dividend That will be cancelled to the extent of

holding % balance to be shown in the consolidated balance-sheet as payable to minority interest

Negative goodwill To be added in the group reserves

During the year acquisition of S Co and

calculation of pre-acquisition reserve Reserves as on opening date of the year in which the S Co was acquired xxx

Add Profit for the year in which S Co

was acquired x Pre-acquisition months

12 months xxx Pre-acquisition reserves xxx

Working

Holding % Minority %

Working

All opening balance of parent Co xxx Add Post acquisition opening balance of

retained profit of subsidiary Co to the extent of

holding % xxx Less Impairment of goodwill xxx

xxx

Working

Profit after tax of subsidiary Co xxx Less Unrealized profit xxx

Minority % = Total amount x MI %

Specific Scenario

1 Intra group dividend

2 Intra group trading

3 Unrealized profit