Transfer of NCA to Subsidiary

I’m assuming your query is in continuance to “Prodigal Co” question that you have asked in last thread. In future, please avoid duplication of threads and continue in the same thread if the query is still not resolved.

From the group’s perspective, there is no change in ownership of NCA (its like taking a sofa from one room to another in your house), so the profit made by P is unrealised.
This addition of PUP has resulted in:

1) Group COS understated by $1,000 in CSOPL (Group RE overstated in CSOFP)
2) Group NCA overstated by $1,000 , which has then caused
3) ‘Excess’ depreciation in CSOPL of $200

For adjustment of 1) and 2), the entry will be:

Dr Group COS $1,000
Cr Group NCA $1,000

If you are preparing CSOFP, then you will simply replace Group COS with Group Retained Earnings. This is because the profit is recorded by P only, so no impact on NCI.

Adjustment of 3) requires following entry:

Dr Group NCA $200
Cr Group COS $200

The net impact is that Group NCA decreased by $800 and Group COS increased by $800.

Following additional explanation relates to adjustment 3) only. Do not put too much effort into following explanation unless you are specifically required by question to prepare CSOFP as well.

If you are only preparing CSOFP, then the entry using Group Retained earnings will be slightly different due to the addition of NCI. I’ll try my best to explain it as simply as possible.

The excess depreciation relates to Subsidiary only. We know that any impact on S’s profit will eventually be split between Group’s share of S’s profit and NCI’s share. The effect of reversal of excess depreciation on S’s profit is that it increases the profit by $200.

This increase in profit will eventually be split between Group’s share and NCI’s share, so that Group will receive 75% of it while the remaining will belong to NCI. Hence:

Group’s share $150 (75%)
NCI’s share $50 (25%)

So the entry in CSOFP will be:
Dr Group NCA $200
Cr Group Retained Earnings $150
Cr NCI $50

You are welcome.