Question 1

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 CloudServe's post-acquisition profit for the year ended 31 December 20X5 (in $).

Accepted Answer

Time apportion the full year profit. Acquisition was 1 July, year-end is 31 Dec = 6 months. $800,000 * 6/12 = $400,000.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Using the full $800,000 or applying the 80% ownership percentage at this stage.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 6

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