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In the 4th part of (a)
If its in Stage 2 then why the carrying amount of Financial Assest is deducted, we should have done the entry
Dr P& L.
Cr ECL Allowance
Because in Stage 3 we actually reduce the value of assest that is impair the asset
One more thing why the amount is deducted by 2m, this 2m was related to previous year the 9.9m is for remaining life.
In b part
In answer its written that using arms length price is not necessary in intra group transaction and there is no ethical issue in this.
My question is that why do we use Transfer Price then, like in previous studies we have learned that Transfer price needs to be determined on the basis of arms length.
1. Traveler is a very old question that is no longer in the BPP kit
However I can confirm that your understanding of stage to an stage three impairment is correct
2. The parent can charge the subsidiary whatever it wants
There is no ethical issue – in practice there may be a problem if the subsidiary has a minority shareholder who is affectively being ripped off – but that’s more relevant to the law paper
However it would cause problems for taxation because the tax authority might wish to use arm’s-length price but that would be outside the syllabus