DFS - Goodwill impairment
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I know there have been a number of discussions over this, and I apologise to bring this up again but I am a little curious...
In the exam, the question starts:
"Calculate the following figures relating to the acquisition of Cameroon Ltd that will appear in the consolidated balance sheet of Klarke plc as at 30 September 2006:
(a) the goodwill arising on acquisition
(b) the minority interest
(c) the consolidated retained earnings of the group."
Now as I understand it, the figure to appear in the consolidated Balance Sheet would be Net Goodwill, i.e. Goodwill less the impairment. This is what we were taught to put in the Consolidated Balance Sheet at the end of the year. :?
I've read the question that we're preparing the BS one year after the acquisition (which took place on 1st October 2005) which would take into account the impairment because it states that "The directors have concluded that goodwill on the acquisition of Cameroon Ltd has been impaired during the year. They estimate that the impairment loss amounts to 20% of the goodwill." :?
I appreciate that there is nothing we can do at the moment and I'm in no way trying to discourage anyone on the methods they used in the exam but I do think you could quite easily get confused by this question when it asks for figures at the year end but it also asks for the goodwill figure arising on the acquisition. :?
I'd be interested to read other's views on this now that the questions have been released.
In the exam, the question starts:
"Calculate the following figures relating to the acquisition of Cameroon Ltd that will appear in the consolidated balance sheet of Klarke plc as at 30 September 2006:
(a) the goodwill arising on acquisition
(b) the minority interest
(c) the consolidated retained earnings of the group."
Now as I understand it, the figure to appear in the consolidated Balance Sheet would be Net Goodwill, i.e. Goodwill less the impairment. This is what we were taught to put in the Consolidated Balance Sheet at the end of the year. :?
I've read the question that we're preparing the BS one year after the acquisition (which took place on 1st October 2005) which would take into account the impairment because it states that "The directors have concluded that goodwill on the acquisition of Cameroon Ltd has been impaired during the year. They estimate that the impairment loss amounts to 20% of the goodwill." :?
I appreciate that there is nothing we can do at the moment and I'm in no way trying to discourage anyone on the methods they used in the exam but I do think you could quite easily get confused by this question when it asks for figures at the year end but it also asks for the goodwill figure arising on the acquisition. :?
I'd be interested to read other's views on this now that the questions have been released.
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Comments
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Re:DFS - Goodwill impairment
I agree fully that this was a poorly worded question among several others on the DFS paper. There are two main points to remember;
1) The date of acquisition was 1st October 2005.
2) Goodwill wasn't deemed impaired until 30th September 2006.
According to the question, we should have quoted the unimpaired figure as at 1st October 2005, however I know I quoted the impaired figure as at 30/9/06. From talking to others, there seems to be an equal split over who put which figure.
The AAT quality control for this paper seems to have been somewhat lacking so it'll be very interesting to read the chief assessors report when it's released in February. You would imagine that if there is indeed a significant split, then they will surely have to review the question, wouldn't you?
Robert0 -
Re:DFS - Goodwill impairment
I've seen a number of posts about this requirement being poorly worded, and I'm sorry, but I disagree.
The question clearly asks for the value on the balance sheet date, so you should provide the value after deducting impairment. "Goodwill arising on acquisition" is merely the name of the asset, to distinguish it from any other, similar assets. For example, if the question asked for the net book value at 30 September 2006 of a machine purchased in 2002, you would calculate the current book value rather than the original cost.
There seems to be similar confusion over question 2.2. This task asks about elements of financial statements, which are clearly and specifically defined. Whilst I thought that asking for all elements was unexpectedly lengthy, I cannot agree that the question was unclear.
Sorry folks, just my thoughts,
Forget it now, and get on with Christmas!
Andrew Harrington0 -
Re:DFS - Goodwill impairment
Andy
I agree with you, when reading the question it does state at Balance Sheet Date, however I can also see how students can get confused by the wording.
The DFS papers have in the past asked for the full definition of the elements of the Financial Statements so I was pretty prepared for that however I misinterpreted the 2.1 question for the components of the Financial Statements and listed the Balance Sheet etc
I suppose the point I'm trying to make is that it's not uncommon for people to misinterpret the way in which a question is asked but as you've rightly said, let's get on with Christmas...
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Re:DFS - Goodwill impairment
I agree that people often misinterpret words, especially in the pressure-pot atmosphere of an exam. That makes it even more important to read the requirements very carefully - students often skim the owrds quickly, and don't necessarily see what is actually there. In your own comment, Bones, you talk about question 2.1 (presumably 2.2) and "components", but the question asked for "elements" and did not mention components! It's always worth spending a few extra seconds reading and re-reading requirements to make sure they are clear.
Andrew Harrington0