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Sir,
I encountered a question which contained Provision for Unrealized Profit (PUP) on transfer of non current assets. Could you explain the difference between PUP on transfer of non current assets and sale of goods (emphasizing on transfer of non current assets in a group).Your Student
There is no real difference – the unrealised profit is eliminated from the retained earnings of the selling entity
There is the additional element in the profit on the transfer of TNCA where it’s the NET profit that is eliminated from the selling entity’s retained earnings (net of any depreciation element on the unrealised profit) but the entry is the same
Dr (selling entity’s) retained earnings
Cr the affected assetOK?
So,
If on P the parent acquired 60% subsidiary S on 1 Jan 2015 and at the same date P transferred $8m Non Current Asset to S for $10m and the NCA has useful life of 5 years.At the year end:
*PUP for Parent P would be $2m and That should deducted from:
i) Parent Profit &
ii) NCA in Group Financial Statement*And Extra Depreciation of $2m/5 = $0.4m should be added back to:
i) Subsidiary Profit
ii) NCA in Group Financial Statement.(Is this treatment is correct. Please give a feedback)
You haven’t given me a year end date so I presume that it’s 31 December 2015 that we’re heading to
This part is incorrect:
“*And Extra Depreciation of $2m/5 = $0.4m should be added back to:
i) Subsidiary Profit
ii) NCA in Group Financial Statement.”The NET pup is $2,000,000 – $400,000 = $1,600,000 and this amount is the single figure needed for the adjustment
The adjustment necessary on consolidation is:
Dr P’s Retained earnings $1,600,000
Cr Combined TNCA $1,600,000OK?
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