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Hi sir, regarding incidental costs of acquisition, for example, professional costs of $500 .
It cannot be included within the cost of investment right, it has to be expensed off.
Regardless whether the question tells us that this $500 has been included within the cost of investment or not, we still got to minus 500 from group retained earnings right ?
Or do we only minus the 500 from group retained earnings , if the question tell us that this has been included within the cost of investment ?
If it has been correctly accounted for by being expensed, then that double enrtry will already have been effected
If, alternatively, it has been included as part of the cost of acquisition, that would be incorrect
So, to adjust, we need to reduce the figure for cost of acquisition and reduce retained earnings
It’s not possible to give you a hard and fast rule. for example, if a questions states that $500 professional fees have been included by the client in their calculations of cost of acquisition, but no entries have yet been made to reflect the purchase, then that $500 needs to come out of the client’s draft figures and be written off against retained earnings
But now, just think.
What is the point of the examiner setting you a question with professional costs involved where these costs have been accounted for correctly? Where they in fact have been accounted for correctly the examiner is most unlikely to make any mention of them or that fact within the question
So it’s (almost) a guarantee … where professional costs HAVE been mentioned within the question, it is highly likely that those costs have been incorrectly capitalised as part of the cost of acquisition and will now need to be adjusted for
OK?
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