ACCA P2 help needed
Gill Gittings
Registered Posts: 121 Dedicated contributor 🦉
My head is going to explode and I have hit a stumbling block and hope someone can help me with this question as I can't for the life of me get my answers to work.
Utility D owns a generating facility with a book value of $55. Entity E owns 60% of the voting rights in a power distribution business, entity F. On 31 December 20X2, Utility D sold its generating facility to Entity E and received in exchange Entity E's interest in Entity F.
The fair value of the generating facility, determined by an independent valuation is $150. The fair value of entity F's identifiable net assets determined by an independent valuation is $200.
Required: Explain how Entity D accounts for the business combination.
Some help gratefully appreciated.
Utility D owns a generating facility with a book value of $55. Entity E owns 60% of the voting rights in a power distribution business, entity F. On 31 December 20X2, Utility D sold its generating facility to Entity E and received in exchange Entity E's interest in Entity F.
The fair value of the generating facility, determined by an independent valuation is $150. The fair value of entity F's identifiable net assets determined by an independent valuation is $200.
Required: Explain how Entity D accounts for the business combination.
Some help gratefully appreciated.
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Hi Gill
Entity D has given up a non-monetary asset (the generating facility) to acquire a controlling interest in Entity F.
Entity D's facility meets the definition of an asset 'held for sale' under IFRS 5. The re-classification as an asset held for sale has no immediate effect on the income statement as fair value less costs to sell is higher than the carrying amount. Entity D should recognise the acquisition of Entity F and a gain on disposal of the facility when the transaction occurs.
The consideration that Entity D paid is calculated by reference to the fair value of the generating facility given up, which is $150. Entity D has elected to measure non-controlling interests at the NCI's interest in the identifiable net assets which is (200 x 40%) $80. Goodwill is:
Consideration...........................150
NCI..........................................80
Fair value of net assets acquired.(200)
Goodwill....................................30
The gain on disposal is:
Sale consideration.....................150
Book value of facility..................(55)
Gain.........................................95
Hope that helps.
Good luck on Tuesday!
Steve0 -
Thanks Steve that has helped a lot.0
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Good luck for the exam on Tuesday. I'm sitting it too (and P1 tomorrow). Not looking forward to either of them.0
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Good luck for the exam on Tuesday. I'm sitting it too (and P1 tomorrow). Not looking forward to either of them.
Good luck to you too. Im just doing P2 for now because it is such a big syllabus and there is soooo much to remember. I studied that question above for hours but Steve made it look so easy I think it's just because they all call the paper the "beast"!
Gill x0 -
Good luck to all doing the P papers!0
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Steve it may be useful to illustrate how exactly you have arrived at your $55 book value for the facility.0
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I think the exam has been and gone but...Gill Gittings wrote: »
Utility D owns a generating facility with a book value of $55.0 -
beverly hudson wrote: »Steve it may be useful to illustrate how exactly you have arrived at your $55 book value for the facility.
I thought tutors were the ones who told the students to read the question properly.......0 -
beverly hudson wrote: »Steve it may be useful to illustrate how exactly you have arrived at your $55 book value for the facility.
This book value is easy enough for any student to see in the OP question. By the time a student reaches P2 stage of ACCA I would hope they would not need such "spoon feeding".
This is absolutely not intended to be inflammatory at all, but you do seem to pick a lot of holes in Steve's replies and it is quite unnecessary. Steve is well respected on these forums and his answers are always spot on so it might be more helpful if you could focus your attentions on perhaps helping students who are finding things difficult as opposed to alienating one of the most respected individuals in the world of financial reporting. After all, tutors are there to help students.0 -
This is absolutely not intended to be inflammatory at all, but you do seem to pick a lot of holes in Steve's replies and it is quite unnecessary. Steve is well respected on these forums and his answers are always spot on so it might be more helpful if you could focus your attentions on perhaps helping students who are finding things difficult as opposed to alienating one of the most respected individuals in the world of financial reporting. After all, tutors are there to help students.
+1 to that.0 -
Julia & Monsoon
I appreciate what you are implying but I am not "picking holes" in Steves answers nor am I implying he isn't good at what he does. I am merely stating that if you are going to help students out then you need to be sure they can fully understand your answers. I have been teaching for 25 years and have met thousands of students who get confused at complex topics such as consolidations and can only "get it" after going through a step by step approach. Sometimes people on a forum assume the ones they are helping are on the same level as they are which they will not be. Clarity and transparency are 2 important attributes in helping a student. That's all I am inferring in my posts . I am not "picking holes".0 -
with all due respect beverly, you are picking holes.
I am level 2 AAT, and if I was asked to find what the 'book value of facility' was in that question, I would quite clearly get that from 'utility D owns a generating facility with a book value of $55' there are no complicated or even uncomplicated formulas needed, it is in the question.
If you are so worried about how students reading this might need it clarified, why don't you clarify it for them instead of trying to pick an argument with Steve every time.0 -
Beverly,
Which bit of
did you feel left enough confusion for you to stateUtility D owns a generating facility with a book value of $55.Steve it may be useful to illustrate how exactly you have arrived at your $55 book value for the facility.
?
I completely agree with Jaffa'sgirlIf you are so worried about how students reading this might need it clarified, why don't you clarify it for them instead0 -
Beverly I understand you have a lot of years teaching experience but realistically the forums aren't here to provide tutorials.
Transparency and clarity are important issues, but in fairness to Steve, his answers always are transparent and clear. I have taught financial reporting and audit for 18 years and he answers questions by students in a manner which I would answer, if not better sometimes.
Julia (BPP)0 -
Beverly when you answered one of my questions your answer was completely wrong and Steve had to correct you. So how can you advise someone like Steve as to how to answer questions. Sorry if you think this is out of order but students think Steves answers really help them so leave the guy alone and stop criticising him.0
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Hi Beverly
In response to your point about the OPs question and my subsequent reply; the figure I used was in the body of the question itself. The difficulty the OP was facing in relation to this question was how Entity D would account for the business combination, which seemingly the OP understood after I had worked the Q on her behalf. The point you made about the book value of the generating facility, I did not feel warranted highlighting separately because it was clear where I had picked up the figure from.
The discussion forums are not really a place to offer full and comprehensive 'teaching' solutions, and whilst I agree about 'transparency and clarity' being pivotal in getting the information across to students (particularly those studying a paper as difficult as ACCA P2 'Corporate Reporting'), I do feel that my answer was clear enough to enable the student concerned (and indeed any other P2 student who may stumble across this thread who is having similar difficulties) to fully understand what the question was testing and the way in which I have calculated the numbers.
Kind regards
Steve0 -
Excellent response from Steve - though it ought not to have been necessary.
I have reported Beverly for being a troll - posting inflammatory comments, then fanning the flames of argument and not bothering to come back to respond to direct questions. I know Beverly has stated in the past she is not a troll, but if it walks like a duck, looks like a duck and quacks like a duck...
It's such a shame - we have many valuable contributors to this site, and it's a shame when some members let the side down in both technical accuracy and community spirit to what is otherwise a great forum.
I'm glad Gill got her question answered, which is of course what the site is here for :-)0
