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Sir,
A 75% subsidiary S transferred A non current asset to P at a profit .So as per my understanding the adjustment for the profit is to be made under the retained earning of S and the excess depreciation on the profit portion to be adjusted against the retained earning of P.
Is it correct ? because I have seen in one text (BPP) the depreciation is being adjusted with Retained earning of S.
Kindly clear my doubt.
Satheesh RV
‘… and the excess depreciation on the profit portion to be adjusted against the retained earning of P.
…’You’re wrong, sorry Satheesh
The NET unrealised profit is deducted from the retained earnings of the selling entity
The cost deduction is obvious
But the depreciation adjustment also adjusts the SELLER’S retained earnings – it’s as though that element of the asset that is used up (measured by the depreciation) is realised over time so the original amount treated as unrealised will over time become a realised profit
OK?
Ok sir, but my doubt is as the excess depreciation in charged in the buyer’s P&L and so why the reinstatement of the same is not done in the buyers books itself .
Satheesh RV
That’s a sensible question but I’ve just told you what to do!
It’s a consolidation adjustment – the buyer’s figures are not altered – it’s only for the consolidation!
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