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Sir, why is excess depreciation added to Non current asset in SFOP? Depreciation is supposed to be spread over the useful life of an asset and as such NCA must be carried at CV.
I assume that you’re looking at a consolidation question where one entity has sold someTNCA at a profit to the other entity
The purchasing entity will be charging / has charged depreciation on the transfer value of that asset
But so far as the group is concerned, that asset is overvalued and should be being depreciated based on the original cost to the group
So the entity that has sold the asset at a profit within the group needs to remove the unrealised profit that was recognised on transfer (Dr Retained Earnings and Cr TNCA) and, in addition, needs to make an adjustment in respect of that excess depreciation that has been charged by the purchasing entity
This depreciation adjustment should be effected by the SELLING entity and the adjustment is Dr TNCA and CR Retained Earnings by the amount of depreciation that has been charged on the unrealised profit that was recognised on the transfer by the selling entity to the purchasing entity
OK?
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