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Dear Sir,
Can you kindly explain to me why the depreciation change would not affect the consolidation? The question is from MCQ bank.
Many thanks.
N
Q: When the subsidiary sold some PPE to the parent half way through this year, the carrying value of the plant was $750,000 and the transfer price was $820,000. Whilst the subsidiary owned the plant, it was being depreciated on a straight line basis over its remaining estimated useful life of 7 years. However, on the sale to the parent, the estimate of the remaining useful life was revised to just 5 years. It is group policy to charge a full year’s depreciation charge in the year of purchase and none in the year of sale. What is the adjustment in the records of the parent of the purposes of the consolidation?
A: NIL
It’s “Nil” because the adjustment is in the records of the selling company and, in this case, that’s the subsidiary company
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