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(Term reconcilliation is used where we show profit attributable to owners and NCI)
—Subsidiary sells Plant to Parent at profit .
We debit Consolidated Reserve and NCI by profit and credit plant.
In p/l reconciliation we deduct the profit amount attributable to NCI.Question : 1.how do we treat additional depreciation charged by parent…do we include that in reconciliation?
2- how our answer differs if subsidiary sold plant on loss. The under depreciation amount would be brought in reconciliation?
(Reference question bpp exam bank 17 highland)
Hi,
I haven’t got the BPP material to hand but should be able to answer your question.
If the parent has charged extra depreciation then we need to remove it to reflect the single entity concept, as this depreciation would not have been charged if the transfer of PPE at a profit had not been made.
To make the adjustment we need to remove the depreciation expense (CR Depreciation expense), thus increasing the profits of the parent, which is done in the group retained earnings working. The other side of the entry is to increase PPE on the face of the group SFP (DR PPE).
If the transfer is made by the subsidiary then the adjustment is the same but the profit effecting entry is done to the subsidiary’s retained earnings, which is usually in S’s net assets working.
Hope this helps.
Thanks
Focusing on Consolidated p/l reconciliation
Case 1- S sells to P , P over charged Depreciation
No adjustment in profit attributable to NCI because parent over charged depreciation not the subsidiary.
Case 2- P sells to S, S overcharged depreciation
In p/l reconciliation we add back depreciation charged(according to NCI%) to come at profit attributable to NCI
Case 3- transaction is at loss
Only difference would be there will be need of charging additional depreciation because asset was under depreciated due to transaction at loss
Am I right?
Hi,
You’re correct with the first two cases. In the third case though an adjustment would need to be made to bring the depreciation back to the amount charged before the transfer took place.
Thanks
Thanks .
Lets focus on case 3 nowSubsidiary sells plant at loss to parent , for the depreciation under charged by parent we ( Dr depreciation expense. Cr plant – as depreciation is charged in p/l of parent we don’t attribute the expense to nci )
OR
you please explain “to bring the depreciation back to the amount charged before the transfer took place”Hi and thanks
BPP Question 17 exam bank question HIGHLAND solution “attributed the depreciation expense to NCI ” while calculating profit attributable to nci: in the event of subsidiary selling Building at LOSS. I should consider that as an error then.
If the subsidiary made the sale then we’d adjust S’s books, similar to an inventory PUP, and therefore this would then impact the NCI, so it appears the question is correct.
Thanks
You are saying that if Subsidiary sells building to Parent at loss/gain, depreciation under/over charged by parent will be ” attributed to NCI ” in consolidated P/L .
And concept behind this treatment is that – HAD this sale not taken place subsidiary would have charged depreciation so profit attributable to NCI will account for this under/over charge depreciation.
Are we on same page now?
Hi,
If the subsidiary sells inventory/PPE and a PUP adjustment is required then the adjustment is made in S’s books on consolidation and will therefore impact the NCI.
The likelihood of this appearing in the P2 exam is very small, so I wouldn’t get overly worried about it.
Thanks
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