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Transfer of NCA to Subsidiary

Forums › ACCA Forums › ACCA FR Financial Reporting Forums › Transfer of NCA to Subsidiary

  • This topic has 3 replies, 2 voices, and was last updated 1 year ago by f6ali.
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  • November 27, 2021 at 2:01 pm #641804
    kinza1997
    Participant
    • Topics: 16
    • Replies: 18
    • ☆

    hi
    plz someone correct my journal entries for Transfer of NCA to Subsidiary

    DR Retained earnings of Parent by profit amount

    CR Retained assets of Subsidiary by excess depreciation

    CR NCA by PUP

    SOPL
    CR Depreciation through COS
    what should the other entries be for sopl? plz help

    November 28, 2021 at 10:35 am #641861
    f6ali
    Member
    • Topics: 10
    • Replies: 342
    • ☆☆☆

    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

    November 28, 2021 at 4:58 pm #641928
    kinza1997
    Participant
    • Topics: 16
    • Replies: 18
    • ☆

    Hi

    Sorry for the mistake and thanks for helping out again.
    i am grateful to you for your help.

    regards

    November 29, 2021 at 1:22 pm #642005
    f6ali
    Member
    • Topics: 10
    • Replies: 342
    • ☆☆☆

    You are welcome.

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