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Q] Paprika Co purchased 75% of the equity share capital of Salt Co on 30 April 20X4. Non controlling
interests are measured at fair value.The cost of sales of both companies for the year ended 30 April 20X6 are as follows:
Paprika= 60,000
Salt= 100,000The following additional information is provided:
1. Salt Co had machinery included in its net assets at acquisition with a carrying amount of
$120,000 but a fair value of $200,000. The machinery had a remaining useful life of eight
years at the date of acquisition. All depreciation is charged to cost of sales.
2. During the year, Salt Co sold some goods to Paprika Co for $32,000 at a margin of 25%.
Three-quarters of these goods remained in inventory at the year end.
What is the cost of sales in Paprika Co’s consolidated statement of profit or loss for the year
ended 30 April 20X6?My Doubt=> Why and how is the ‘additional info’ 1 to be used to solve this question?
This is a FV adjustment to the net assets of the subsidiary. You would need to increase the FV of S’s net assets in the net assets working (80k increase) and then depreciate the increase over the remaining useful life of the asset (8 years and so 10k per annum).
This is a common adjustment that you need to be comfortable with in the exam and you can see how to perform it in the class notes and videos.
Thanks
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