Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › ASK ACCA TUTOR – FINANCIAL REPORTING (FR) QUESTION clarification
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- July 3, 2020 at 10:52 pm #575871
This question is on unrealised profit in non-current asset…
QUESTION
Paint acquired 90% of Saint on 1 July 20X8. On that date, Paint sold an item of plant to Saint for $2.4million. The plant had cost Paint $2million on 1 January 20X7. Saint has charged $120,000 on this plant since it was acquired, based on a useful life of 5 years.Required:
What adjustment is required in respect of the plant when preparing the consolidated statement of financial position at 31 December 20X8?ANSWER(from the book)
• $1,080,000 should be deducted from the carrying amount of plant in Saint’s statement of financial position before adding across.• $1,080,000 should be deducted from group retained earnings in working 5.
Working 5
$000
Carrying amount in Saint’s accounts at 31.12.X8 ($2.4m – $120k) 2,280
Carrying amount in Paint’s accounts had no transfer occurred
$2m × 3/5 1,200
PUP 1,080My question is:
-Can I try and calculate that $120,000 charge(as stated in the question)to see how they arrive to that figure? Because I have seen an example exactly like this but diff. figures where they calculate the charge amount even tho it was already in the question. I have tried to work it out myself and I have arrived at that $120,000 but the working does not seem right. If you can work it out it will be great to see how you can do it.-How did they get 3/5 when calculating Paint’s account if no transfer occurred?Cause as far as I can see it’s more like “1-2” years.
-Am I doing something wrong or not following along or is this an error in the books? This have been bugging me and I can’t seem to move pass it unless I have proper understanding, even if it’s not suppose to be that difficult of a question
Thank you in advance.
July 11, 2020 at 9:13 am #576544Hi,
On the $120,000, you cannot calculate this amount as there is insufficient information in the question.
The 3/5 is the remaining life of the asset. If it was bought on 1 Jan X7 and the reporting date is 31 Dec X8 then two years have elapsed and there are three left. If the total life is five years, then the carrying value at 31 Dec X8 will be 3/5ths of the initial cost.
Thanks
July 14, 2020 at 8:13 am #576753Why is the cost of acquisition of an intangible asset capitalised ? Since it is a cost, shouldn’t it be charged to statement of income or loss account ?
July 15, 2020 at 8:43 am #576858Hi,
IFRS 3 values all assets at fair value on acquisition, so any intangibles acquired as part of the acquisition of a subsidiary are capitalised at fair value.
Thanks
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