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Consolidation Fixed Asset Sale by Parent Co to Subsidiary.

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Consolidation Fixed Asset Sale by Parent Co to Subsidiary.

  • This topic has 5 replies, 2 voices, and was last updated 9 years ago by MikeLittle.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • February 8, 2016 at 7:31 pm #299743
    Muhammad Maaz Hussain
    Participant
    • Topics: 4
    • Replies: 4
    • ☆

    Hi,

    There is a question of consolidation in Dec 2007 named Plateau. In that question there is an adjustment,
    “On 1 October 2006, Plateau (Parent Co) sold an item of plant to Savannah (Subsidiary Co) at its agreed fair value of $2.5 million. Its carrying amount prior to sale was was $2 million. The estimated remaining life of the plant at the date of sale was five years (straight line depreciation).”
    Acquisition date is 1 October 2006 and Balance Sheet date is 30 September 2007.

    Savannah Retained Earnings
    -at 30 September 2006 –> $6.5 million
    -for the year ended 30 September 2007 –> $2.4 million

    The examiner has calculated Savannah’s Post acquisition profit as $2.9 million, in which he had included above mentioned sale amount i.e. $0.5 million.

    My question is how can the examiner just include this $0.5 million figure in calculating Savannah’s post acquisition profit, but if he had done so why there is no depreciation amount included?

    Technically, the sale of non current asset held by parent to subsidiary is the item of consolidated retained earnings of parent company, where the entry is passed that
    retained earning (debit) and asset (credit).

    February 8, 2016 at 7:46 pm #299746
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Hmmm! I’m not convinced that the extra $500,000 is the unrealised profit recognised by Plateau when Plateau sold the $2 million asset to Savannah for $2.5 million

    That doesn’t make sense!

    I suggest that there must be a $500,000 somewhere else in the question that has caused the post acquisition profits in Savannah to be increased fro $2.4 million to $2.9 million

    Please check it carefully looking for this rogue half million!

    February 8, 2016 at 8:15 pm #299748
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    You’ve just made me listen to the whole of my audio lecture on Plateau and Savannah and ….. I have no idea where you’ve got your figures of $2.4 million and $2.9 million from!

    February 21, 2016 at 1:04 am #301332
    Muhammad Maaz Hussain
    Participant
    • Topics: 4
    • Replies: 4
    • ☆

    Hi, Sorry for the very late reply. I actually didn’t get the email for this reply so I didn’t come to know that you have replied and also I am not aware of the notification. So Sorry for this.

    February 21, 2016 at 1:11 am #301333
    Muhammad Maaz Hussain
    Participant
    • Topics: 4
    • Replies: 4
    • ☆

    Okay. I will check this again as you said.

    February 21, 2016 at 11:48 am #301379
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    I’m looking forward to it!

  • Author
    Posts
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