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consolidation statement of financial position – Example 7.2 BPP material

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › consolidation statement of financial position – Example 7.2 BPP material

  • This topic has 3 replies, 2 voices, and was last updated 8 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • July 12, 2016 at 7:22 pm #325722
    lailaa
    Participant
    • Topics: 5
    • Replies: 4
    • ☆

    Question is: P Co. Owns 60% of S Co. and on 1 January 2001 S Co Sells plant costing $10,000 to P Co. for $12500.

    They make account to 31 Dec 2001. and the Balance of their R/E :

    P: after charging depreciation of 10% on plant —————— $27,000
    S: including profit on sale of plant —————————— $ 18,000

    what is Consolidated R/E?

    the answer is:

    P: 27,0000
    +
    60% of S: (18,000 – 2500 + 250) 60% = 9,450

    = 36,450

    I didn’t understand why depreciation adjustment amount (250) is added back to the subsidiary not Parent ?

    July 12, 2016 at 8:04 pm #325733
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Good question!

    The answer is that, of that $2,500 pup, 1/10th is now recognised and, as each year goes by, 1/10th is recognised for each of those successive years

    So the pup of $2,500 in the subsidiary is, over the life of the asset, being realised

    The course notes do explain this – have you read them?

    Is that ok as an explanation?

    July 19, 2016 at 9:07 pm #327809
    lailaa
    Participant
    • Topics: 5
    • Replies: 4
    • ☆

    Actully i didn’t understand your point !

    July 20, 2016 at 6:19 am #327874
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    Ok, the pup on the transfer of the plant from subsidiary to parent is recognised in the subsidiary

    Over the next ten years, that plant will be depreciated down to zero

    Surely that means that, by the parent’s usage of that asset, the pup recognised by the subsidiary on the transfer is being realised over those ten years

    The depreciation on that profit element therefore represents the extent to which that pup is realised each year so a pup for the full amount in the subsidiary should be annually adjusted – it’s no longer a provision for UNrealised profit because 1/10 is effectively realised each year

    Is that better?

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