ACCA paper fair values (1)

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Section 2 Introducing fair values
Question 1 Dolphin
Two years ago a parent company paid $90,000 for an investment of 80% of a subsidiary's equity
when the retained earnings were $25,000. An extract of the statement of financial positions at the
reporting date shows;

Ordinary shares ($1)
Retained earnings

Parent Subsidiary
$
$
25,000
15,000
100,000
40,000
125,000
55,000

The fair value of the NCI at the date of acquisition was $20,000.
It is group policy to measure the NCI at acquisition at fair value.
For consolidation purposes an upwards fair value adjustment of $25,000 was made on certain items
of property plant and equipment which at the date of acquisition had a remaining life of five years.
By the reporting date goodwill has been impaired by $1,000.
Required
a) Calculate the goodwill at the reporting date.
b) Prepare the equity section of the group statement of financial position.

A student's guide to Group Accounts by Tom Clendon, Second Edition, published by
Kaplan Publishing

www.kaplanpublishing.co.uk
Section 2 Introducing fair values
Question 2 Seal
Two years ago a parent company paid $90,000 for an investment of 80% of a subsidiary's equity
when the retained earnings were $25,000. An extract of the statement of financial positions at the
reporting date shows;

Ordinary share ($1)
Retained earnings

Parent Subsidiary
$
$
25,000
15,000
100,000
40,000
125,000
55,000

The fair value of the net assets of the subsidiary at the date of acquisition was $65,000. The increase
in the fair value is attributable to a fair value adjustment in respect of land.
By the reporting date goodwill has been impaired by $2,000.
It is the policy of the group to measure NCI at acquisition as a proportion of net assets.
Required
a) Calculate the goodwill at the reporting date.
b) Prepare the equity section of the group statement of financial position.

A student's guide to Group Accounts by Tom Clendon, Second Edition, published by
Kaplan Publishing


www.kaplanpublishing.co.uk

Section 2 Introducing fair values
Question 3 Sea lion
The following information relates to an 80% subsidiary which is a cash-generating unit. It is group
policy to measure the NCI at acquisition at fair value.
Net assets at
acquisition

Net assets at
year-end

$m
100

$m
150

Fair value of
the NCI at
acquisition
$m
25

Cost of the
investment at

acquisition
$m
200

Recoverable
amount at year-end
$m
255

Required
Calculate the impairment loss arising on the impairment review and show its accounting
treatment.

A student's guide to Group Accounts by Tom Clendon, Second Edition, published by
Kaplan Publishing


www.kaplanpublishing.co.uk
Section 2 Introducing fair values
Question 4 Walrus
The following information relates to an 80% subsidiary which is a cash-generating unit. It is group
policy to measure the NCI at acquisition as a proportion of net assets.
Net assets at
acquisition
$m
100

Net assets at yearend
$m
150

Cost of the investment
at acquisition
$m
200

Recoverable amount at
year-end
$m
255

Required
Calculate the impairment loss arising on the impairment review and show its accounting
treatment.

A student's guide to Group Accounts by Tom Clendon, Second Edition, published by
Kaplan Publishing