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Sir, Please consider the below:
P holds 80% shares of S.
P sold PPE to S and made a profit $1000.
Depreciation for PPE is 20% p.a .
I do know the correct treatment for this is:
Dr. P’s Retained Earning 1000
Cr. S’s NCA 1000
&
DR. S’s NCA 200
Cr. P’s Retained Earning 200.
(due to realisation of profit/depreciation)
By doing this we are realising the profit made from intra-group trading.
But the problem is we should not realising profit made from intra-group trading.
What is the true rationale of doing this?
Looking forward for you reply. Thank you.Ok, let’s deal with the NET amount of $800
Dr P Retained Earnings 800
Cr PPE 800And that’s all there is to it!
As each year goes by, the $1,000 IS realised to the extent of $200 pa
So in the second year, the pup adjustment will be as above but for an amount of $600
In the third year, $400
And so on so that after 5 years the $1,000 will have been realised
Does that make it better?
Thank you for your reply, and I understand what u were telling me.
But what I do not understand is that why are we realizing it?
Isn’t that we are not supposed to realizing the profit because it is intra-group trading?But over the period of the remaining asset, that profit IS realised by the parent
I believe that you are confusing the concept of eliminating pups from the intra group sale of inventory
In the situation of an intra group sale of PPE, the parent WILL realise the profit on the transfer over the life of the asset
Is that ok for you?
Alright Sir, I get it now.
Thank you for your time and responses.
Appreciate it.
Have a good day.
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