Equity method: cost, goodwill or bargain income, fair value adjustment, uniform policies, share of profit and of other comprehensive income, dividends and closing carrying amount: Sovrel — retained 40% interest

Context

Halvern Group SA (fictitious entity) closes its consolidated accounts on 31 December 20X6. The preparer draws up the year’s associates file, submitted to a reviewer: significant influence in Corsel and Dunmar, the equity method for Pelvane, Quorin and Sovrel (including the 40 % interest retained after a loss of control), Vorlan’s eliminations, Rimel’s losses, the impairment of Tarvik and the loss of influence in Orvel. Teaching simulation: the review trail of the file (preparation, reviewer notes and final sign-off) is simulated for demonstration purposes; it is neither a real review nor a validation of the content.

Assignment

Equity method for Pelvane, Quorin and Sovrel

Purpose of the workpaper

List the cost, the share of the fair value of net assets at acquisition, the adjusted profit (uniform policies, extra depreciation of the fair value excess), other comprehensive income and dividends, then reconcile the opening carrying amount with the closing one. Percentages, fair values and lives are case data; the adjusted profit of the associate is computed by hand (no multi-line schedule is modelled).

Questions of the file covered by this workpaper

• Pelvane: compute Halvern’s share of the fair value of the identifiable net assets.
• Pelvane: compute the difference between the cost and that share and state its treatment.
• Pelvane: compute the extra annual depreciation relating to the fair value excess.
• Pelvane: harmonise the policy and compute the adjusted profit used for the share.
• Pelvane: compute the share of the adjusted profit.
• Pelvane: compute the share of other comprehensive income.
• Pelvane: what dividend does Halvern receive and how is it accounted for?
• Pelvane: compute the closing carrying amount of the investment.
• Quorin: compute Halvern’s share of the fair value of the identifiable net assets.
• Quorin: compute the difference between the cost and the share and state its treatment.
• Sovrel: how is the retained 40 % interest treated after the loss of control, what is its cost and what part of the gain relates to remeasurement?
• Sovrel, second half: compute the share of profit and of other comprehensive income and the closing carrying amount.
• Quorin: record the acquisition with the bargain income.
• Pelvane: record the share of the adjusted profit.
• Pelvane: record the share of other comprehensive income.
• Pelvane: record the dividend received.
• Sovrel: record the retained interest brought to fair value as the cost of the associate.

• MemoGroup profile and file conventionsOpen
• ContractCorsel SA and Dunmar SA: voting rights and indicatorsOpen
• ExtractPelvane SA and Quorin SA: acquisitions and profitsOpen
• ContractSovrel SA: interest retained after the loss of controlOpen
• ContractVorlan SA: upstream, downstream and contribution transactionsOpen
• ExtractRimel SA and Tarvik SA: losses and impairmentOpen
• ContractOrvel SA: disposal and loss of influenceOpen
• MemoGroup training budgetOpen
• MemoValuer’s note: useful life of Pelvane’s equipmentOpen