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Boat Co acquired 60% of Anchor Co on 1 January 20X4. At the date of acquisition, the carrying amount of Anchor Co’s net assets were the same as their fair values, with the exception of an item of machinery which had a carrying amount of $90,000, a fair value of $160,000 and a remaining useful life of five years.
Non-controlling interests are valued at fair value.
What is the journal entry required to reflect this fair value adjustment in the consolidated statement of financial position of Boat Co as at 31 December 20X6?
in the answers, relating to depreciation, it says:
An additional depreciation charge is required for 3 years (31 Dec 20X4, 20X5 and 20X6), therefore $70,000/5 years u 3 years = $42,000. Therefore property, plant and equipment is increased by $28,000 ($70,000-42,000).
why is 28000 treated as an increase in the PPE?
On consolidation we include S’s net assets at fair value in the group financial statements. The $70,000 increase is the uplift from the carrying value of $90,000 to the fair value of $160,000 (160 – 90 = 70). This additional value will not have been depreciated and therefore needs to be depreciated in the group accounts. Depreciation is cumulative for the three years since the acquisition, hence the $42,000 charge that reduces the $70,000 increase in PPE.
The net effect of these two adjustments is the $28,000 (70,000 – 42,000).