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On Consolidation,if Parent sells an item of plant to Subsidiary at a fair value of $2.5M & its carrying amount prior to the sale was $2M.Estimated remaining life of the plant at date of sale was 5years.Do you include the above fair value adjustment in net assets of Subsidiary,or generally,where does that amount go??
The only adjustment necessary for the purposes of the consolidation is the elimination of the pup
The issue then is ‘Against which retained earnings do I set the pup adjustment?’ and the answer to that is ‘Against the retained earnings of the entity that has recognised the unrealised profits’ – in your case, the parent’s retained earnings
Using the figures in your post, there is an unrealised profit of $400,000 and the adjustment to put through in your consolidation workings will be:
Dr Parent’s retained earnings $400,000
Cr Combined TNCA $400,000OK?
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