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hi
i want to ask that the question says:
“Also at the date of acquisition, Paradigm conducted a fair value exercise on Strata’s
net assets which were equal to their carrying amounts (including Strata’s financial
asset equity investments) with the exception of an item of plant which had a fair
value of $3 million below its carrying amount. The plant had a remaining economic
life of three years at 1 October 2012.”if the fair value is below the carrying amount then why we add back the depreciation as the answer says. Whats the logic behind it??
Hi,
If we have reduced the value of the asset then the depreciation charge will be less and so we need to add the depreciation saved to the retained earning of the subsidiary.
If depreciation was 10, say, and is now 9 due to the asset being reduced in value then the 10 has been charged to retained earning when we only want 9. We therefore add back the 1 to get to our depreciation of 9.
Thanks
Hi Chris
I am doing the practice questions and would like to seek clarification on Question 1 for the following
– how do we derive 1,200,000 share @ 2.60– why is the fair value adjustment $2.4m / 8 / 3 = $(100,000)
Thanks.
Hi,
I’m struggling to see where this is relevant to the forum title. Could you please start this on a new thread and give it a full title and then I can answer it for you. Otherwise it just gets lost among all the other questions.
Which practice questions are you referring to also, please?
Thanks
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