In the consolidated accounts the non current assets purchased from member companies should be disclosed at carrying value to the seller.
Adjustments have to be made to remove the unrealized profits and disclose the asset at carrying value to the group.
1. Sale of Non-Depreciable Assets
Where the sale price is above carrying value (cost or book value), and the assets still remains with the buyer then the profit recognized by the seller is unrealized profit from the standpoint of the group.
unrealized profit = sale price > book value
2. Sale of Depreciable Assets
If the asset sold is a depreciable assets, then besides adjusting for unrealized profits, adjustments have to be made for depreciation. The buyer of the assets would have depreciated the asset acquired base on the carrying value to the buyer. However, for consolidation purpose depreciation has to be based on carrying value to the group.
workings:
1. Calculate unrealized Profit
Unrealized profit = sale price > book value
Adjustments: Dr CSOCI
Cr NCA
2. Compare if there is a difference in depreciation that shall be adjusted. Depreciation group is in accordance with the depreciation on the carrying value.
If depreciation of sale price > depreciation of book value; adjustment has to be made.
Dr Accumulated Depreciation
Cr SOCI (buyer)
3. Calculate new balance for profit and loss of subsidiary, where the new balance is to be calculate to NCI Account
4. Find the new value of non current asset to be included in the CSOFP
| NCA | |||||
| Balance b/f | Unrealised Profit c/f | ||||
| Accumulated Depreciation | Acc | ||||
| P&L Balance c/f | Balance b/f | ||||
5. Find out if subsidiary sold to Holding - calculate for NCI portion; but if holding sold to subsidiary, there are NO NCI's portion.
