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Lecture 13

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11 views4 pages

Lecture 13

Uploaded by

Haseeb Raza
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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By Sir Zahid Hameed Shah

Advance Financial Accounting


and Corporate Reporting
(AFACR)

Lecture#13
Standard Workings
1. Group Structure.
2. Fair Value of Net Assets at Acquisition date and at reporting date.
3. Goodwill.
4. Calculation of Un-realized profits.
5. Calculation of Group Reserves (Retained Earnings).
6. Non-Controlling Interest (NCI).
7. Investment in Associates/Joint Ventures.
2. Net Asset at acquisition and reporting date
Acquisition date Reporting Date
Book value / carrying value
Share Capital XXX XXX
Reserves XXX XXX
Adjustments for:-
Add: Unrecognized Assets XXX XXX
Less: Unrecognized Liabilities (XXX) (XXX)
Add: Excess of F.V over C.V of Assets XXX XXX
Less: Excess of C.V over F.V of Assets (XXX) (XXX)
XXX XXX
Difference
Post-acquisition Net Assets

@Prepared by Shahab Imran Abbasi #CR


By Sir Zahid Hameed Shah

Net Assets will change due to


1. Profit or Loss
2. Dividends
4. Un-realized Profit
Un-realized profit will be adjusted in inventory and Profit (Retained Earning) of
the seller.
Inventory
Downstream Transaction (Parent to Subsidiary)
Upstream Transaction (Subsidiary to Parent)
Transfer Price → Price at which intra group transaction take place
If T.P is cost → no unrealized profit
If T.P is more than cost→, unrealized profit may exist
If goods are sold to 3rd parties, If some or all of the goods are still
Means no goods are available in inventory of receiver
In inventory

No un-realized Profit Un-realized Profit exists

Example: Parent sold goods to subsidiary for Rs. 1000000.Transfer price is


cost + 25% .Subsidiary sold 75% of these goods to customer. For Rs. 1000000
Value of goods in inventory
1000000*25% = 250000
Cost + Profit = Sales
X + 0.25x = 250000
X= 250000
= 200000
1.25
0.25x = 200000*0.25
0.25x = 50000
Cost of goods → Sale Price – Profit = Cost
100000 – 0.25x = x
750000
Transfer Price = 1000000
Unrealized Profit →
@Prepared by Shahab Imran Abbasi #CR
250000
By Sir Zahid Hameed Shah

Scope of Non-Current Asset


Parent sold an Asset (Machine) having C.V of Rs. 500000 with remaining useful
life of 5 years to subsidiary for Rs. 800000.
Sale took place on 1 January 2019
Current Reporting Date is 31st December 2021
Depreciation in case of no transfer
500000
= 100000 p.a
5
Depreciation after transfer
800000
= 160000 p.a
6
Incremental depreciation from date of transfer to reporting date
(60000*3) = 180000
Gain on sale (800000-500000) 300000
Less: impact of depreciation (180000)
Un-realized Profit 120000
5. Group Retained Earnings (Reserve)
Retained Earnings of Parent XXX
Less: Unrealized profit on downstream transactions (XXX)
Less/Add: Unrecognized / errors in book of Parent XXX/ (XXX)
Add: Gain on bargain purchase XXX
Subsidiary (Post Acquisition Retained Earning)
Net Assets at Reporting Date XXX
Less: Net Assets at Acquisition date (XXX)
Post-Acquisition Net Assets XXX
Less: Un-realized profit on upstream transactions (XXX)
Post-Acquisition Adjusted Net Assets XXX
Share of Parent (Post Acquisition Adjusted Net Assets * XXX
Percentage of holding)
Impairment Loss (in case of Full Goodwill→% of holding XXX
In case of proportionate goodwill→ Total loss
Group Retained Earning XXX
@Prepared by Shahab Imran Abbasi #CR
By Sir Zahid Hameed Shah

6. Non-Controlling Interest
At Acquisition Date XXX
Add: Share of Post-Acquisition Net Asset XXX
Less: Share of impairment loss in case of full goodwill XXX
At Reporting Date XXX

@Prepared by Shahab Imran Abbasi #CR

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