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Hello Tutor
Example:
”At the date of acquisition, the fair value of S’s plant and machinery,
which at that time had a remaining useful life of ten years, exceeded
the book value by $10,000.”The solution says,
Excess depreciation
$10,000/10 years = $1,000.
The adjusting entry is:
Dr Cost of sales $1,000
Cr PPE $1,000Thank you.
At the acquisition date FV is more than CV. So they charged extra depreciation. Why did they use COS head?
Depreciation is usually charged to cost of sales in the statement of profit or loss (specifically in exam questions), hence why it has been recorded there.
Thanks
hi Tutor, can u pls help me with the below question:
Polestar OTQ case;Q: What is the amount of the adjustment to profit attributable to the non-controlling interest in respect of unrealized profit
(iii) Polestar sold materials at their cost of $4 million to Southstar Co in June 20X3. Southstar Co processed all of these materials at an additional cost of $1.4 million and sold them back to Polestar Co in August 20X3 for $9 million. At 30 September 20X3 Polestar Co had $1.5 million of these goods still in inventory. There were no other intragroup sales
the solutions says: which i don’t understand
Unrealised Profit= 9m -5.4m = 3.6 m which i get but i dont follow from here:still in inventory = 3.6 m x 1.5 / 9 = 600,000 x 25% = 150,000 Answer
pls help.
Thanks
YaseminHello Yasemin, I am not the tutor I am sorry to both Yasemin and the tutor for replying and I hope I don’t get pinched on the ear by the tutor for answering in the forum but I got the answer and I hope I can make it clear.
You understood the profit right? -that is 9m(the price that the seller sold)-5.4m(cost incurred of 4m and extra 1.4m)=3.6m.
This is the total profit the seller expects which can only be realised if the buyer in the same group sells it to an outside party .
In the question it says that 1.5m was unsold by Polestar, thereby the profit on this much inventory was not realised
So the profit on unsold goods= 3.6m*( 1.5m / 9m ) = 600,000
Hope you remember ,when we do group SPL or Group Retained earnings, we allocate at the end , the profit/post acquisition retained earnings of the subsidiary to the Group and to the NCI at their respective % holding.
So in the same way we allocate this individual item of PURP which appears in the SPL to NCI at their share
i.e 600,000*25%= 150,000
The question was to find how much was attributable to NCI , 150,000 was attributable to NCI
And just to add in a bit more detail regarding the numbers used in the calculation and why we are doing so.
If the total profit on the $9m of goods sold intragroup is $3.6m, and there are only $1.5 of the original $9m left in inventory then we can work out the percentage of good left as 1.5/9, which is approx16.67% of the goods left.
There will therefore be this proportion of the profit remaining within the group, so we apply this percentage to the total profit of $3.6m to give the $600,000.
Thanks
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