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Dear Professional,
“On 31 December 20X6, Kutchen Co acquired 80% of the equity interests of Mach Co, a privately owned entity, for a consideration of $57 million. The consideration comprised cash of $52 million and the transfer of non-depreciable land with a fair value of $5 million. The carrying amount of the land at the acquisition date was $3 million. The land is still carried at that amount in the group financial statements at 31 December 20X6 as the proximity of the transaction to the year end date meant the land had not been transferred to the seller of the shares in Mach Co.
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Why both Other Component of Equity +2 and retain earnings +2 in this case? Shouldn’t this be double counting?Please use topic (e.g. transfer of assets) not numbers as thread header.
Please give sufficient detail so that I and other exam candidates don’t need to try and find the relevant question. No need to copy and paste. Just express your question in your own words.
🙂
Noted, will use topic in my future questions instead.
To summarise my question,
The land used as part of the purchase consideration has a carrying amount of $3 million in the consolidated financial statement, but It’s fair value is $5 million. I understand that there is a $2 million gain for the land, shouldn’t this $2 million gain go straight to P/L (retained earnings). However, the answer show that both Retained Earnings and Other Components of Equity (OCE) increased by $2 million each.
I’m confused why both retained earnings and OCE are increased by $2 million in this case. Isn’t this double counting the same fair value uplift from the land?Thank you.
The two 2s are in respect of separate adjustments, but I still don’t have enough information. I can see that the gain on the land would go to K’s P&L and therefore RE, but I’m not sure what the other adjustment was.
Where have you sourced Kutchen please? I know there are now several different versions.
Thanks
Steve
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