ACCA/CAT

Question One

This question required （in part （a））the preparation of a consolidated statement of financial position （balance sheet）for a parent，a subsidiary and an equity accounted associate. The question specifically required the calculation of consolidated goodwill （involving contingent consideration and two fair value adjustments），intra-group adjustments and an impairment of goodwill. Part （b）was a 4 mark written section.

The preparation of the consolidated statement of financial position was generally well answered，but answers to the written section were very mixed.

The main errors by candidates in the consolidation were：

·goodwill calculation：using an incorrect share price for the share issue and incorrectly revising the value of the contingent consideration as a goodwill adjustment （it should be to retained earnings）[Note：for UK-based papers it is correct to adjust the goodwill]. Incorrectly or not adjusting for software that had no recoverable value. Also a number of candidates failed to include the non-controlling interest at its fair value with the consequential effect on goodwill [not applicable to UK-based papers].

·the adjustment to the value of the software was also often written off the value of non-currents （even though the question said it had already been written off）and rarely was it accounted for as part of the subsidiary’s post acquisition profit calculation.

·the intra-group adjustments for goods-in-transit，URP（often calculated incorrectly）and current account balances were often wrong with no clear pattern of mistakes；just about every combination of error was reported

·the profit of the associate was often not time apportioned

·the impairment of goodwill was not apportioned between the parent and non-controlling interest [not applicable to UK-based papers]

·a lot of errors/omissions made in earlier calculations were carried through to the calculation of consolidated retained earnings

·some candidates accounted for the share exchange issue （effectively double counting it）even though the question said it had already been accounted for

·some answers used proportional consolidation for the associate （some even proportionally consolidated the subsidiary）；others consolidated the associate （rather than using equity accounting）-thankfully this is now only a tiny minority of candidates.

Despite the above this section was well answered.

Part （b）was a short （4 marks）written section testing candidate knowledge of the legal position of a subsidiary within the context of group financial statements. The subsidiary provided a copy of the group’s consolidated financial statements to support an application for credit. Answers to this were generally poor and even alarming. The majority of candidates thought that a parent （or other subsidiaries）was responsible for the debts of its subsidiary. This is not the case. Without a guarantee from the parent，a strong group statement of financial position does not give any assurance to a potential creditor of a subsidiary. It is essential to base any extension of credit on the individual （entity）financial statements of the subsidiary itself. Another misinterpretation of this section was that some candidates thought it was a question on ratio analysis and described the ratios they would calculate to determine the liquidity position of the group.

（责任编辑：中大编辑）

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