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Hello,
I’m currently stuck in a question that says the company net assets were equal to their carrying amounts with the exception of inventory which cost 3m but had fair value of 36m. 10% of these goods remained in inventory.My question is, how do i adjust for this in the net assets of subsidiary and what’s the corresponding entry?
Thanks in advance for your reply.Firstly, questions directed towards the tutor should be posted in Ask the Tutor Forum. This forum is for students to help each other.
Secondly, your question does not provide sufficient information. It is not clear whether the $3m goods were held by subsidiary at the date of acquisition. I’m assuming that only 10% were held by subsidiary at the acquisition date.
All assets of subsidiary, including inventory, are measured at fair values at the date of acquisition for the purpose of goodwill calculation under IFRS 3. This means that we’ll need to measure the 10% inventory held by subsidiary at its fair value and ignore the cost. Therefore the inventory (and net assets) will need to be increased by $3.6m ($36m*10%), thereby reducing the goodwill.
The adjusting entry will be:
Dr Inventory $3.6m
Cr SOPL $3.6m
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