Steve Collings is needed please

Barry

Please could you help me with this question on ACCA P2 as I have really struggled and don't know what to do as my college course has been cancelled by my employers so I am studying by myself,

K Corp owns 85% of D Corp and on 31/12/11 the carrying value of D net assets is $1m. Carrying value of NCI is 100,000. On 1 January K sells a 50% interest to a 3rd party for 600,000 and a 30% holding is valued at $400,000 on that date.

Calculate the gain or loss.

I've come up with a loss of $20,000 but not sure this is right.

Thank you.

Steve Collings

With isolated questions like this you're probably well-advised to step back from the situation, read each section in isolation and then prepare bullet points for each section until your skills develop. Once you do this you can go back to the question and see that things like this are not that difficult but if you take the whole Q in at once it can seem overwhelming. This is what I used to do when I was a student tackling these sorts of Q's:

- K owns 85% of D. Thus D is a subsidiary and will be consolidated in the group a/cs.
- The y/e in question is 31.12.11. This starts on 1 January 2011.
- At the last completed y/e the net assets of the subsidiary were $1 million.
- At the last completed y/e the fair value of NCIs was $100,000.

So far you've got all the info you need that takes you up to the y/e. The above bullet points essentially "set the scene" for you. Now we are moving into the areas where we have to do some work, so:

- On 1 January (2012) the parent sells off a 50% holding to an unconnected party. What does this mean?
- Firstly K owned 85% of D PRIOR to 1 January. This was a subsidiary.
- Post 1 January 2012 they now own (85% less 50%) = 35%. This brings D down from a subsidiary to an associate.
- K still has significance over D (as they own more than 20% of the voting rights).
- The sales proceeds were $600,000.
- The remaining holding that K has in D has been valued on 1 January 2012 at $400,000.

I question your '30%' holding because 85% less 50% = 35% not 30%.

You can see therefore that what I've done here is to break all that information into "steps" which will help to completely understand the Q rather than taking in a mass of info all at once. This is something that you should do in the study phase and your skills will then develop to help you identify key points in the revision/exam build-up phase. Once you've cracked these skills you will then be able to deal with the long case-study style scenarios that P2 has in the paper but doing the "bullet list" above is crucial in the early days of P2 study.

I don't get your loss of $20k and I've tried a couple of ways to rework my answer to come to a loss of $20k but I can't. I get a gain on disposal of $50k which I've worked out like this:

Cash received.................................................................$600,000
Fair value of retained non-controlling interests ($1m x 35%)....$350,000
Carrying value of D's non-controlling interests.......................$100,000
Less: carrying value of D's net assets...............................$1,000,000
Gain on disposal................................................................$50,000

I hope that helps you.

Steve