dfs Fair Values

System

Hi I was wondering if anyone could help me with a homework question I have...

What effect do fair values have on the calculations for minority interest and on post aquisition profits?

Pretty easy I suppose but my brain has stopped working as i've been at it all day!!! The BPP textbook for DFS is truly awful - I have yet to find it useful and feel totally unprepared for the exam.

Thanks, Laura x :oops:

System

Re:dfs Fair Values

Hi (not sure if this is right)

If the fair value of non-current assets is different to the carrying value at the time of acquisition you usually need to adjust the accounts accordingly. If it is more you usually debit the non-current assets in the balance sheet and credit the revaluation reserve in equity. The revaluation reserve is then taken into account when valuing the company which is being acquired (when doing goodwill calculations) and also the minority interest.
The only way I can think it might affect post acquisition profit is that a decrease in value would be debited to the income statement (unless it reverses all or part of a previous increase which then goes to the revaluation reserve). Also an increase which reverses all or part of a previous decrease is credited to the income statement (instead of revaluation reserve).

These movements would probably affect post-acquisition earnings depending on when they occurred.

If anyone else thinks that is right or has any other ideas I would be grateful to know.

Tori