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I have doubt regarding the following question:
Parent owns 80% of Subsidiary. Parent transferred a non-current asset to Subsidiary on 1 January 2016 at a value of $15,000. The asset originally cost Parent $20,000
and depreciation to the date of transfer was $8,000. The asset had a useful life of five years when originally acquired, with a residual value of zero. The useful life at the date of transfer remains at three years. Both companies depreciate their assets at 20% per annum on cost, making a full year’s depreciation charge in the year of acquisition and none in the year of disposal. Total depreciation for 2016 was $700,000 for Parent and $500,000 for Subsidiary.
What is the necessary adjustmentis needed to be made in the CSPL?So as per my understanding, the answer is
Depreciation adjustment is $ 1000
But the actual answer is $1,202,000.There is a $3,000 unrealised profit on the transfer of the asset (as at date of transfer it was sold for $15,000 but had a carrying value of only $12,000)
That profit is realised over the period of use oft he asset so, as each year goes by, $1,000 of that profit-achieved-on-transfer is realised
After one year, therefore, there is a need for a provision for unrealised profit of just $2,000 and that explain why the aggregate unadjusted depreciation has increased from $1,200,000 to $1,202,000
Is that clearer for you?
Sir,
Should we deduct $1000 at the end of the year as the profit gets realized in the CSPL adjustments.
But I still have doubt about, what should be done with the depreciation adjustment?The $1,000 IS the depreciation adjustment!
Have you watched the lecture video that deals with this issue of transferring assets from one group entity to another and how to approach the problem in a quick, easy and fool-proof way?
I can’t type out the entire lecture within which this topic is covered but I believe that, if you were to watch that lecture, all would be made clear
Please watch it and then, should you continue to have a problem with this matter, post again on this forum and I shall get back to you again
OK?
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