ExpertHard1 markShort Answer
ACCA · Question 45 · Preparing Simple Consolidated Financial Statements
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the NCI share of CloudServe's post-acquisition profit, taking into account the PUP adjustment (in $).
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the NCI share of CloudServe's post-acquisition profit, taking into account the PUP adjustment (in $).
How to approach this question
1. Post-acquisition profit = $400,000. 2. Deduct PUP because the subsidiary (CloudServe) made the sale: $400,000 - $100,000 = $300,000 adjusted profit. 3. NCI share = 20% * $300,000 = $60,000.
Full Answer
CloudServe's post-acquisition profit is $400,000. Because CloudServe is the seller in the intra-group transaction, the $100,000 PUP is deducted from its profit to find the adjusted post-acquisition profit: $400,000 - $100,000 = $300,000. The NCI owns 20%, so their share is $300,000 * 20% = $60,000.
Common mistakes
Forgetting to deduct the PUP from the subsidiary's profit (resulting in $80k), or deducting it from the parent's profit instead.
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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