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According to BPP textbook, upon acquisition of a subsidiary, there are two possible ways of FV adjustment of the net assets acquired :
1. The subsidiary makes necessary adjustments in their own books. They pass this double entry :
DR Asset
CR Revaluation reserveAfter that, they depreciate it with new carrying value accordingly.
Therefore, I think no consolidation adjustments needed regarding additional depreciation
2. The subsidiary does nothing about fair value adjustments and the parent has to adjust for it when doing consolidation by making these consolidation adjustments :
DR Asset
CR Revaluation reserveDR Retained earnings (for additional depreciation)
CR AssetIn BPP text book, there is one example in which they adjust for additional depreciation when doing consolidation EVEN THOUGH the subsidiary ALREADY made fair value adjustment in their own books (I saw a revaluation gain in other comprehensive income in the subsidiary’s separate SoCI) and I think of course they already charged additional depreciation. Isn’t it a double-counting ?
It sounds like it! There are a number of reasons why this situation could have occurred.
1 You have misread the question!
2 You have misread the answer!
3 BPP have mistyped their question
4 BPP have made a mistake in the answer
5 There’s something else in the question, other than a fair value adjustment as at date of acquisition, that needed an additional depreciation adjustment
But, basically, your thinking is correct. If the subsidiary HAS put through the fair value adjustments, then the subsidiary will be calculating depreciation on the adjusted carrying values so there should be no need for a further depreciation adjustment
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