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Dec 07 Q1-Plateau, full year acq, P sold S NCA at acq date for profit of disposal NCA at 2.5-2=0.5, including annual deprn 0.1. I see in CSFP carrying value of PPE less0.4, Group R.E. less0.4. Where to charge the depren 0.1.
Suppose the question asking for preparing CIS, the 0.1 depren should be charged to consolidated cost of sales or just subtract as below:
Profit for the year X
Other comprehensive income
Gain on disposal of plant X-0.1 or X-0.5?I really cant know how to deal with the 0.1 deprn and also 0.5 unrealize profit in CIS.
when NCA is sold among group.
find the profit , here it is 0.5 and depreciate it. here it is 5 years of life time, i guess.
0.5/5=0.1
then deduct that depn to 0.5 , we get 0.4.
this 0.4 is unrealised profit.we need not charge this 0.1.since, 0.1 is depn of a profit amt. we do this for ease of calculation.
another way to calculate this is.
if asset is not sold,
then it CV is 2.
depn charge is 2/5=0.4
CV at year end is 1.6now, it is sold, new cv is 2.5
depn charge is 2.5/5=0.5
cv at year end is 22-1.6 =0.4, which is unrealised profit.
again, profit for the year is given that implies that depn charge(0.5) is already written off in Income statement, we need not do it again.profit for the year is given that implies that depn charge(0.5) is already written off in Income statement—-Why?
now, both parent and subsidiary has lot of asset. why you are not charging depn of all that assets ? why u assume that only for one asset they forgot to depreciate?
Re the pup on the asset transfer – that unrealised profit needs to be depreciated. When the asset was sold within the group, it then follows that the buying company will depreciate the asset based on cost to the buying company ie based on the transfer price.
So far as the group is concerned, the asset should be shown at original cost less accumulated depreciation. Effectively, we need to reduce the “new” value as shown in the buyer’s books down to what the value would have been if the asset had never been sold and it was still held by the original owning company.
OK, therefore we need to eliminate the pup on the original transfer.
That pup is part of the “new” cost to the buying company and will be the basis of the depreciation charge. But if we are to eliminate the pup, then we need also to make a correction to the depreciation. Where the pup is, say, 500,000 and the estimated useful life is 5 years, after the first year one fifth of that unrealised profit has been realised, so the pup adjustment as at the date of CSoFP at the end of the first year is 400,000 ( ie 500,000 – 100,000 ).
This adjustment is made against the retained earnings of the selling company as at the consolidation date.
In the CSoI, the depreciation for the year on the pup – in my little example it would be the 100,000 – should be deducted from the consolidated cost of sales
Now the situation is this asset is with S. P removed 0.4 as URP on this asset. When we are doing CIS, how to deal with this transaction? If condition of the question is profit this year of P is a as individual, profit this year of S is b.
Can someone talk more about PUP? The account usually represent for what? Thanks
If we deduct 0.4 from COS as PUP in CIS, it means 0.1 deprn already been charged in S’s individual COS, we can omit it?
No, don’t deduct 0.4 from cost of sales! ADD 0.4 to cost of sales! That will reduce the profit which is what a provision for unrealised profit ( pup ) should do!
hi caoqin1981,
please read carefully what others are writing for you and then ask doubts.you are still coming up with 0.1 depn. 0.1 depn is difference of 2 depreciation value.
deprecition value if not sold,
and depreciation after selling.
in the above example , it is 0.4 depn if not sold and 0.5 depn if sold. the difference of this value is 0.1. u can get the same value by divinding the profit amount by 5. so calculation is easier. we never depreciate a profit amount. we depreciate only the cv of assets. 0.1 is not a depreciation value of any asset. it is a simply a difference. that 0.1 is deducted to PUP. to get new PUP.now, why we have to deduct. it is bcoz this PUP is of an asset. all asset are depreciated annually and so even PUP will become smaller. you can take your own example to understand the concept.
Thanks for correction.
But what’s the Carrying value of this asset at SoFP first year? 2m-0.4m=1.6m and also left in P’s account book? if 5years remaining straight line just at sale date. full year acq.
When we preparing CSoI, just adding 0.4m PUP to cost of sale, or adding 0.4m,then deduct 0.1m deprn for the year of PUP? I think just -0.4m? bcoz 0.1m has been transferred to accumulated deprn?
before the sale , cv is 2m, given in the question.
after the sale, cv is 2.5m , again given in the question.how you got 0.4? check the steps again, u will get it.
if asset is not sold,
then it CV is 2.
depn charge is 2/5=0.4
CV at year end is 1.6now, it is sold, new cv is 2.5
depn charge is 2.5/5=0.5
cv at year end is 22-1.6 =0.4, which is unrealised profit.
if u follow the method above, u wont even get 0.1 , which u r confused about.
read the steps above carefully. then u will clear ur doubts.very clear. sold is sold 🙂 Thanks, carrying value is 1.6m year end in S account book.
0.4m adding back to COS and against group R.E.,less in PPE C.V. when consol.
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