Financial Reporting (FR) Mar / June 2021 Examiner’s report

Where did candidates go wrong?

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FR MJ21 examiner\'s report

Indicate, by clicking on the relevant boxes in the table, whether the following statements are true or false in relation to accounting for the

Where did candidates go wrong?
Many candidates answered with $150,000 instead of $180,000. This comes from
only including the $500,000 shares in the list of net assets acquired and ignoring the
retained losses brought forward and profit to the date of acquisition.
Although candidates may be more used to seeing a positive value for retained
earnings, they would be expected to recognise that retained losses should be
included as part of the net assets acquired and to calculate this appropriately.

Question 3

$'000 $'000
Fair value of consideration transferred:
Cash consideration
?
Contingent consideration
250
Plus fair value of NCI at acquisition
100
Less fair value of net assets acquired:
Shares
500
Retained earnings/(losses) at acquisition
(W1)
(270) (230)
Goodwill at acquisition
300
Therefore $180,000 is the balancing figure related to the cash consideration
W1 – Retained earnings at acquisition
$'000
Retained earnings/(losses) at 1 January 20X0
(300)
Profit to the date of acquisition (120 x 3/12 months)
30
Retained earnings/(losses) at acquisition
(270)
Indicate, by clicking on the relevant boxes in the table, whether the
following statements are true or false in relation to accounting for the
acquisition of a subsidiary.

Examiner’s report – FR March/June 2021
6
What does this test?
As with the previous question, this question also tests candidates’ accounts
preparation knowledge, this time through learning outcome D2(g). The focus here is
on accounting for goodwill and bargain purchases.

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