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Can someone explain to me how to treat with Inventories held with a fair value which was $2 million greater than its book value (although all of these inventories had been sold).
in the csofpYou do nothing if the fair value of inventories is greater than its book value. If this inventory had been written down previously then you will credit the figure by which they were written down.
But again you say they have been sold at the year end and you mention “CSOFP”Can you rephrase your question, do u mean the inventories have been sold inter-group?
If yes, the inventories will be still valued at their book values.Thank you Kinqnasha.
I would like to rephrase,
Re:- extract from the question
The fair values of G and A were not materially different from their book values at the time of acquisition, with the following exceptions:
1. G had inventories with a fair value of $2 million greater than its book value. All of these inventories had been sold by 31 March 20×9. (This is the group SOFP year end date)
11. Items of plant and equipment belonging to G have a fair value of $5 million in excess of its book value.
No adjustments has been made by G for either of the above items.Tell me should the increase of 2 mil be part of the net assets.
Yes… This is a problem similar to the one in “Comprehensive example Agne and Dace” in the OT course notes.
The situation is only relevant when the fair value comment about undervalued inventory applies to the date of acquisition this year – ie, it’s a mid-year acquisition.
The pre-acq period’s profits will be understated by the amount of this inventory fair value adjustment and the post-acq profits will be overstated by the same amount
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