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Qn) X Co acquired a 60% holding in Y limited on 1 january 20X6. At this date, Y had a building with a fair value $200 000 in excess of its carrying amount, which had a remaining life of 10 years. Also, goodwill has been impaired by $55000 in the year to 31 december 20X6. The balances on operating expenses for the year to 31 december 20X7 are shown below:
X Co $600 000
Y Co $ 350 000What are the consolidated operating expenses for the year to 31 december 20X7?
The answer given is operating expenses = $600000+ $350 000 + $20 000(FV depreciation) = 970 000
And it states in the answer key that the only adjustments to the SOPL should be the current year income or expenses. Therefore, the prior year fair value depreciation and goodwill impairment are ignored.I dont understand. If thats the case then why the adjustment for fv depreciation is included , since it occured in 20X6 ?
No, the $20,000 added to this year’s operating expenses is the depreciation on the fair value increase for 20X7
That fair value increase of $200,000 will cause additional depreciation of $20,000 for each of the next 10 years from year end 31 December 20X6 through to 31 December, 20Y5
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