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FAE Case Studies

  • 12-07-2011 7:43pm
    #1
    runnerbelly
    Closed Accounts Posts: 10 ✭


    Hi guys...

    would anyone be able to help me with a question from the Derry Cotter Financial Reporting Case book? It is Crompton Plant and Fertiliser Group - the second case study.

    I am having trouble understanding pars of the solution.

    1. The acquiree had a legal action pending prior to acquisition - it became probable after the year end that they would receive €320,000 whereas they originally thought they would only receive €100,000 (and had recognised the €100k. I would have thought that as the outcome of the case had not yet been ascertained that this would represent a "contingent asset" under IAS 37 which I thought was never recognised but just disclosed. However, in the solution (p.13 of solution book) they say it is an adjusting event and the entire gain of €320 is recognised. I don't understand this - can anyone explain?

    2. The question stated that the acquiree (PLL) paid a dividend post year end out of pre acquisition profits. I was of the understanding that pre acquistion dividends were treated as a refund of part of the consideration for the acquiree and not as a dividend to the parent as the parent had no rights to those profits... however, in the solution (p.14) it recognises the divdend in the parent's profit and loss in accordance with IAS. 27.38 - although I had thought this would not apply as it was paid out of pre acquisition profits.

    Obviously I am missing something here but I would really appreciate if anyone could clear this up for me! :confused:

    Thanks a Mill

    B


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