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PUP on non current assets

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › PUP on non current assets

  • This topic has 0 replies, 1 voice, and was last updated 3 years ago by alawi sayed.
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  • July 24, 2021 at 9:40 pm #629338
    alawi sayed
    Participant
    • Topics: 301
    • Replies: 352
    • ☆☆☆☆

    Hello Mr Chris,

    In The following example from kaplan text book,the overall difference of depreciation from the transfer of the plant should be $1000,why in their treatment to this problem the $ 1000 appeared twice ,one time in the consolidated R.E and another in Subsidiary R.E ,how is that?

    Thanks

    ————————————————————————————————————————-
    P acquired 80% of S a number of years ago. P transferred an item of
    plant to S for $6,000 on 1 January 20X1. The plant originally cost P
    $10,000 and had an original useful life of 5 years when purchased 3
    years ago. The useful life of the asset has not changed as a result of the
    transfer.

    What is the unrealised profit on the transaction and how should this
    be treated within the financial statements at 31 December 20X1?
    Solution
    Without
    ransfer
    With
    transfer Difference
    $ $ $
    Cost 10,000
    Depreciation (3 years) (6,000)
    ––––––
    Carrying amount 4,000 6,000 2,000
    Depreciation (1/2) (2,000) (3,000) (1,000)
    –––––– –––––– ––––––
    Carrying amount 2,000 3,000 1,000
    –––––– –––––– ––––––
    The overall adjustment would be $1,000 at the reporting date, comprising
    $2,000 of initial profit less $1,000 of excess depreciation. To adjust the
    financial statements using standard workings:

    Dr Consolidated retained earnings (W5) $2,000
    Cr Property, plant and equipment (on SFP) $1,000
    Cr Subsidiary earnings (W2 Reporting date column) $1,000
    The impact of the subsidiary earnings adjustment above in W2 is that
    non-controlling interest will be credited with $200 (20% × $1,000) and
    consolidated retained earnings will be credited with $800 (80% × $1,000).

    If S had sold the plant to P, then the adjustment would have been:
    Dr Subsidiary earnings (W2 Reporting date column) $2,000
    Cr Property, plant and equipment (on SFP) $1,000
    Cr Consolidated retained earnings (W5) $1,000
    The impact of the subsidiary earnings adjustment above in W2 is that
    non-controlling interest will be debited with $400 (20% × $2,000) and
    consolidated retained earnings will be debited with $1,600 (80% ×
    $2,000).

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