04-29-2008, 04:38 PM
Dear Mr KamranACA,
I am facing difficulty in caculating "Carrying Amount Of Investment in Associate" on deemed dsposal topic
Relevant Extracts of Financial Statements are here.
The Balance Sheet Of A and B Ltd for the year ended 31 December 2004 are as follows.
B LTD-
Ordinary Share Capital($1 Each)==>$300,000
Share Premium==============>$170,000
Acumulated Profits===========>$320,000
Brought Forward Profits For B Ltd at 1 January 2004 were $200,000
Profits For The Year Ended 31 Decmber 2004 are $120,000(Profits Are Deemed To Accrue Evenly Through Out The Year)
Notes-
A Ltd Acquired 60% Ordinary Shares Of 'B Ltd' on July 1, 2002 at cost $406,000, when reserves of 'B Ltd' were $120,000.
Included in the tangible assets of 'B' is a piece of land whose fair value exceeded the book value by $30,000 at the time of Acquisition.
On October 1, 2004 "B Ltd" made a right issue of 100,000 Ordinary Shares at a premium of $1.5 per shar. A Ltd decided not to subscribe for right issue.
In November "B Ltd" sold goods to A Ltd at an invoice price of $15,000. The Original cost of these goods were $12,000, 60% of these goods are in A's stock at the balance sheet date.
Solution-
At the balance sheet date Ordinary share capital is $300,000 this also includes right issue so before the rights issue the balance in Ordinary share account will be $200,000 and Share premium Account will be $120,000.
respective entry at the time of right issue will be.
DRCash======>$150,000
CRShare Capital===>$100,000
CRShare Premiun===>$50,000
previously entity A held 60% holding of 200,000shares(i.e. 120,000 shares), now it holds 120,000shares/300,000 shares i.e. 40% so holding of A reduced from 60% to 40% and its control has lost now B is an associate of A.
In November Entity "B" is Associate so the intra group entry will be.
DRReserves======>$ 720
CRInvestment In 'B'===>$720
Calculation Of Good Will-
Cost Of Investment==============>$406,000
LessShare in Fair Value Of Net Assets-
Share Capital=>$200,000
Share Premium=>$120,000
Retained Earnings=>$120,000
Fair Value Adjustment=>$30,000
______________________________
Total============>$470,000*60%==>($282,000)
_____________________________________________
Goodwill======================>$124,000
Now if i have calculated the above things correct then Gain On Deem Disposal is calculated as follows-
Share In Fair Value Of Net Assets Just Before The Right Issue==>[200(Share Capital)+120(Premium)+200(Reserves b/fwd)+90(Current Year Profits till October)]==>$610*60%==>$366.
Share In Fair Value Of Net Assets Just After The Right Issue==>[300(Share Capital)+170(Premium)+200(Reserves b/fwd)+90(Current Year Profits till October)]==>$760*40%==>$304.
Loss On Disposal======>(366-304)=====>($62)
Less Goodwill Disposed=>($124/60*40)==>($82.67)
____________________________________________
Net Loss On Disposal==============>($144,67)
Now B Ltd becomes an associate, so we have to calculate Its Carrying Amount.
There are two methods of it.
In Method#1 we take the fair value of net assets at B/S date apply our Associate's holding percentage and then add UmImpaired Good will.
In Method#2 we take cost of Investment in Subsidiaty and convert it in to Associate's holding(i.e. 406/60*40=>270.67) then we add our associate's share in post acquisition reserves and then we less Impaired Goodwill on our investment.
Can you please provide me the calculations of Carrying Amount Of Investment In Associate as per both methods, unfortunately i am not having a solution of this question, although i have calculated it using both methods but my answers are defferent from both methods.
I am waiting for your quick reply and please also check above calculations that whether they are correct.
Regards,
Muhammad Amir
I am facing difficulty in caculating "Carrying Amount Of Investment in Associate" on deemed dsposal topic
Relevant Extracts of Financial Statements are here.
The Balance Sheet Of A and B Ltd for the year ended 31 December 2004 are as follows.
B LTD-
Ordinary Share Capital($1 Each)==>$300,000
Share Premium==============>$170,000
Acumulated Profits===========>$320,000
Brought Forward Profits For B Ltd at 1 January 2004 were $200,000
Profits For The Year Ended 31 Decmber 2004 are $120,000(Profits Are Deemed To Accrue Evenly Through Out The Year)
Notes-
A Ltd Acquired 60% Ordinary Shares Of 'B Ltd' on July 1, 2002 at cost $406,000, when reserves of 'B Ltd' were $120,000.
Included in the tangible assets of 'B' is a piece of land whose fair value exceeded the book value by $30,000 at the time of Acquisition.
On October 1, 2004 "B Ltd" made a right issue of 100,000 Ordinary Shares at a premium of $1.5 per shar. A Ltd decided not to subscribe for right issue.
In November "B Ltd" sold goods to A Ltd at an invoice price of $15,000. The Original cost of these goods were $12,000, 60% of these goods are in A's stock at the balance sheet date.
Solution-
At the balance sheet date Ordinary share capital is $300,000 this also includes right issue so before the rights issue the balance in Ordinary share account will be $200,000 and Share premium Account will be $120,000.
respective entry at the time of right issue will be.
DRCash======>$150,000
CRShare Capital===>$100,000
CRShare Premiun===>$50,000
previously entity A held 60% holding of 200,000shares(i.e. 120,000 shares), now it holds 120,000shares/300,000 shares i.e. 40% so holding of A reduced from 60% to 40% and its control has lost now B is an associate of A.
In November Entity "B" is Associate so the intra group entry will be.
DRReserves======>$ 720
CRInvestment In 'B'===>$720
Calculation Of Good Will-
Cost Of Investment==============>$406,000
LessShare in Fair Value Of Net Assets-
Share Capital=>$200,000
Share Premium=>$120,000
Retained Earnings=>$120,000
Fair Value Adjustment=>$30,000
______________________________
Total============>$470,000*60%==>($282,000)
_____________________________________________
Goodwill======================>$124,000
Now if i have calculated the above things correct then Gain On Deem Disposal is calculated as follows-
Share In Fair Value Of Net Assets Just Before The Right Issue==>[200(Share Capital)+120(Premium)+200(Reserves b/fwd)+90(Current Year Profits till October)]==>$610*60%==>$366.
Share In Fair Value Of Net Assets Just After The Right Issue==>[300(Share Capital)+170(Premium)+200(Reserves b/fwd)+90(Current Year Profits till October)]==>$760*40%==>$304.
Loss On Disposal======>(366-304)=====>($62)
Less Goodwill Disposed=>($124/60*40)==>($82.67)
____________________________________________
Net Loss On Disposal==============>($144,67)
Now B Ltd becomes an associate, so we have to calculate Its Carrying Amount.
There are two methods of it.
In Method#1 we take the fair value of net assets at B/S date apply our Associate's holding percentage and then add UmImpaired Good will.
In Method#2 we take cost of Investment in Subsidiaty and convert it in to Associate's holding(i.e. 406/60*40=>270.67) then we add our associate's share in post acquisition reserves and then we less Impaired Goodwill on our investment.
Can you please provide me the calculations of Carrying Amount Of Investment In Associate as per both methods, unfortunately i am not having a solution of this question, although i have calculated it using both methods but my answers are defferent from both methods.
I am waiting for your quick reply and please also check above calculations that whether they are correct.
Regards,
Muhammad Amir
