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During the year S sold some PPE to H for $65,000. It had cost $100,000 when new, 4 years ago and its useful life of 9 years had not changed.
Estimated scrap proceeds of $10,000 were revised on transfer to H to $20,000. It is group policy to charge depreciation on a straight line basis with a full year’s charge in the year of purchase and none in the year of sale.What adjustments are necessary on consolidation and identify in which company’s records those adjustments should be?
AND
Immediately after the acquisition of the subsidiary on 1 October 2010, P transferred an item of plant with a carrying amount of $4 million to S at an agreed value of $5 million. At this date the plant had a remaining life of two and half years. P had included the proft on this transfer as a reduction in its depreciation costs. All depreciation is to be charged to cost of sales in the statement of proft or loss for the year ended 31 March, 2011
And what is it about the answer that you don’t understand? Where are you going wrong?
For the first question I could really do with some dates – date of transfer and date of accounting year end
If my assumptions are correct, my answer to the first question is to reduce TNCA in S by $6,000, and …
… for the second question is to increase cost of sales by $1,000
But give me those dates and tell me specifically what it is that you don’t understand in the printed solution
I do not understand how the redcution in tnca is 4,000 when the profit gain is 5000 so the credit ppe should be 5,000 debit and ret earnings increase by 5,000
For the second, i recognized a 1mil profit so dr P’s ret earnings and credit its tnca I dont know how it is a 800.
Thanks.
And there are no dates. I copied the question as it was on your mini exercises
Because there is depreciation to be charged on that unrealised profit so that also needs adjustment
This is all graphically explained in the free video lectures!
For the second one, again there’s the depreciation affect – check out those free video lectures and see how it’s all explained
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