- April 9, 2022 at 4:40 am #652932
Hi, I have a question relating to this example
On 1 July 20X8 Crystal Co acquired 60,000 of the 100,000 shares in Pebble Co, its only subsidiary. The draft statements of profit or loss and other comprehensive income of both companies at 31 December 20X8 are shown below:
Crystal Co Pebble Co
Revenue 43,000 26,000
Cost of sales (28,000) (18,000)
Gross profit 15,000 8,000
Other income – dividend
received from Pebble Co 2,000 –
Distribution costs (2,000) (800)
Administrative expenses (4,000) (2,200)
Finance costs (500) (300)
Profit before tax 10,500 4,700
Income tax expense (1,400) (900)
Profit for the year 9,100 3,800
Other comprehensive income:
Gain on property revaluation (Note (i)) – 2,000
Investment in equity instrument 200 –
Total comprehensive income for the year 9,300 5,800
(iii) Despite the property revaluation, Crystal Co has concluded that goodwill in Pebble Co has been impaired by $500,000
In the answer it stated that
Administrative expenses (4,000 + (2,200 u 6/12) + 25 (W2) + 500 impairment) (5,625)
I want to ask that why impairment loss is charged in full to administrative expense instead of the proportion to the parent only. I thought that impairment loss has to be shared between parent and NCI like in the working that we normally do for group RE.
I hope that you will answer. Thank you.April 9, 2022 at 5:06 am #652933
I forget to mention that this is the full goodwill method. Thank youApril 13, 2022 at 12:17 pm #653238P2-D2Keymaster
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If you include the impairment loss in full in the subsidiary’s column then the parent’s and NCI’s share will be dealt with when we total S’s profit for the year and split this appropriately.
The impairment is always fully included in the administrative expenses regardless of whichever method we use.
ThanksApril 18, 2022 at 4:33 pm #653810
thank you so much. I understand it now
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