- This topic has 7 replies, 2 voices, and was last updated 8 years ago by
.
- Posts
There is a question in Kaplan
Notes
Sanford is a subsidiary
at the date of acquisition, the fair values of sanford’ assets were equal to their carrying amounts with the exception of its property. This had a fair value of $1.2 million below its carrying amount, and had a remaining useful life of 8 years at the acquisition standford has not incorporated this in its financial statements.At the back of the kit
They have added depreciation amount under cost of sales can you please explain me, why they have done like that?Because Sanford will have depreciated on the higher value / overvalue of the property but its fair value is $1.2 million lower than its carrying value
So sanford has OVER-charged depreciation based on the fair value so we need to add back that excess depreciation that Sanford has charged
OK?
Ohk
But why they have added depreciation amount to cost of sales i mean depreciation expense comes under expenses after gross profitDepreciation is most frequently included within cost of sales – the examiner most often directs you to put it there.
Check out the Sanford question and see whether the examiner has specified that depreciation should be included within cost of sales
Sir I am getting confused
as the question says that Sandford has not incorporated this in his financial statements then how come he would had overcharged it.Because the asset carrying value is in excess of the fair value and the subsidiary has not incorporated the fair value adjustment into its records
Therefore the subsidiary is continuing to depreciate the over-valued TNCA
- You must be logged in to reply to this topic.