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Hello, i study by myself without no tutor normally. I am having trouble understanding one little thing in a question. The question is in the bpp text page 179 J CO parents company of a 60% subsidiary P CO and owns 30% of associate S CO.
It is regarding the 2nd adjustment in the question where it says there is fair value adjustment at acquisition of its subsidiary P CO and which is 400 000 dollars higher than carrying amount. This bit is fine i understand the fair value adjustment needs to go to reduce goodwill calculation. The second part says 50% of that 400 000 increase in freehold property is due to building and has a useful life of 50 years.
Ok this part is to calculate additional depreciation(movement on fair value). Hence 50% of 400 000= 200 000/50(number of useful life of building)= $4000 per year x6 years(since acquisition of assets and acquisition of subsidiary same date).
But in the answer in the book it divided by 40 years instead of 50 years and i don’t get why it did that. There is no residual value and no review of useful life of asset after revaluation so why did it divide by 40 years instead of 50??I don’t have a copy of the BPP study text so I’m not able to look at the original source
Where it tells you that the asset has (had?) a 50 year life, does it give you any indication of when that asset was acquired by the subsidiary
If the asset has already been written down by 10 years’ worth of depreciation and its estimated useful life is unchanged, then at the date of acquisition it would only have 40 years’ remaining useful life
Does that resolve the problem for you?
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