• avatar says

      Hi Mike
      Yes in the above example Depreciation is not included when adding the net assets of the sub and calculating the goodwill but i have a study text from a company ( i won’t mention the name but it begins with K) that states the a fair value Depreciation from a fair value uplift is included when adding up the net assets of the sub and calculating the goodwill and if a sub sells to a parent the resulting pup should decrease the group inventory and decrease the consolidated retained earnings. Why have we increased the cost of sales in this example but in other examples we decrease the group retained earnings?

  1. avatar says

    I have some questions that hopefully somebody can help me with –

    Why did we not include the increase in depreciation when calculating the Subsidiaries net assets?

    And why did we not include the PUP of 400 in the Subsidiaries net assets? I thought the adjustment for a sub selling to a parent was
    Dr Subs post acquisition retained earnings
    Cr Group inventory

    I know we can increase cost of sales on the income statement but if i decreased the subs retained earnings and the inventory would i lose marks?

    Any help on this is much apreciated



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