Consolidation.

This topic has 7 replies, 4 voices, and was last updated 9 months ago by acca2021yasemin.

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September 11, 2021 at 10:42 pm #635546
akka17bakka
- Topics: 73
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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 $1,000

Thank you.
September 11, 2021 at 10:45 pm #635547
akka17bakka
- Topics: 73
- Replies: 71
At the acquisition date FV is more than CV. So they charged extra depreciation. Why did they use COS head?
September 17, 2021 at 7:56 pm #635916
P2-D2
Keymaster
- Topics: 4
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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
September 18, 2021 at 11:53 am #635963
akka17bakka
- Topics: 73
- Replies: 71
Thank you so very much.
September 23, 2021 at 2:33 pm #636367
acca2021yasemin
- Topics: 3
- Replies: 2
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
Yasemin
September 23, 2021 at 3:47 pm #636369
jijon
- Topics: 17
- Replies: 15
Hello 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
September 25, 2021 at 9:03 am #636448
P2-D2
Keymaster
- Topics: 4
- Replies: 6115
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
September 25, 2021 at 11:00 am #636462
acca2021yasemin
- Topics: 3
- Replies: 2
thank you very much!
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