Dec 12 : Minny

Good day tutor,

I don’t understand the treatment of non-cash asset distributions found in part C of Dec 12 question 1 (Minny).

The answer says:
The transfer of the asset from Bower to Minny amounts to a distribution of profits rather than a loss on disposal. The shortfall between the sale proceeds and the carrying amount is $1 million and this will be treated as a distribution. Bower has retained earnings of $442 million available at the year end plus the sale of the non-current asset will ‘realise’ an additional amount of $400,000 from the revaluation reserve. It is likely that the sale will be legal, depending upon the jurisdiction concerned.

Does this mean that both Retained Earnings and Revaluation Surplus in Bower’s financial statements will be reduced to 0? If so, wouldn’t there still be a balance of $158,000 from the ‘loss on disposal’ of the asset? Will there then be significant adjustments made to the group financial statements of Minny’s?