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- March 20, 2017 at 7:37 pm #378805
sir,
It is extract from BPP study textNon controlling interest
S’s profit after tax (PAT) X
Less: *unrealised profit (X)
*profit on disposal of non-current assets (X)
additional depreciation following FV uplift (X)
Add: **additional depreciation following disposal of
non-current assets X
X
NCI% X*Only applicable if sales of goods and non-current assets made by subsidiary.
**Only applicable if sale of non-current assets made by subsidiary.
im confusing about (**Only applicable if sale of non-current assets made by subsidiary.) is it right? made by subsidiary or parent?????March 20, 2017 at 8:16 pm #378809Yes, it’s correct – I know that it sounds a bit illogical so I’ll try to explain
If you think about the * and the **, the net effect is to reduce the subsidiary’s post acquisition profits by the NET value after depreciation of the intra-group asset sold at a profit
For many years – in fact, until quite recently – the unrealised profit was eliminated from the seller’s profits and the excess depreciation calculated on that unrealised profit was added to the buyer’s profits
But then it changed and so we now adjust the NET unrealised profit in the records of the selling entity
The justification is that, over the remaining life of the intra-group traded asset, the unrealised profit is gradually realised and the extent of that progressive realisation is most easily measured as the depreciation that relates to that unrealised profit
Is that clear?
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