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in the question (example) in bpp page283 and 284 there is a fair value adjustment of a plant of minnow (the subsidiary) which leads to additional depreciation. in the answer the additional depreciation is deducted from the retained earnings of the parent not the subsidiary. as far as i remember from my f7 studies that when there is a fv adjustment of the subsidiay’s assets, the additional depreciation is deducted from the retained earnings of the subsidiary not the parent. could you explain this please
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Although the Asset is that of the sub, the Parent has there share of interest in the asset and should therefore share the fair value adjustment ……and as such the depreciation arising from it as well. correct me if im wrong please.
Hi
I don’t know the quesion but, from what you’ve written, it seems that the excess depreciation on the revalued amount should be deducted from the subsidiary’s retained earnings, post acquisition. Then, when the parent company accounts for its share of the subsid post-acq ret ears, they automatically will have a share of the reduced ( adjusted ) profits. Maybe the BPP answer has given the parent their share of unadjusted post acq profits but then deducted the parent’s share of the excess depreciation. Check it out. If that’s not correct, then post again and I’ll look at the book when I’m next in the office
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