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Prodigal and sentinel
I have problem with note 2
TNCA transfer
Adjustments to cost of sales“Prodigal had included the profit on this transfer as a reduction in its depreciation costs. All depreciation is charged to cost of sales.
Means it has decreased cos by $1m so why we didn’t add it twice so as to cancel the effect.
Because a profit decreases expenses – it doesn’t decrease then twice. The question is “Where should the credit for the profit go?”
And the answer is Prodigal should show it separately but then, on consolidation, that profit should be eliminated as a pup
The adjustment necessary to get it out of cost of sales is to:
Dr Consolidated Cost of sales
Cr Consolidated TNCAand that has the effect of removing the profit from Cost of Sales and reducing group TNCA to its pre-transfer basis of cost less accumulated depreciation
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