Page 344 - F1 Integrated Workbook STUDENT 2018
P. 344
Chapter 19
3.12 Non-current assets PUPs
P and S may sell non-current assets to each other, resulting in a profit being
recorded in the selling entity's financial statements. If these non-current assets are
still held by the purchasing entity at the year-end, the profit is unrealised from the
group's perspective and should be removed.
The profit on disposal should be removed from the seller's books.
In addition to the profit based on the excess of the transfer price over the carrying
value in the selling entity's books, there is depreciation to deal with.
Prior to the transfer, the asset is depreciated based on the original cost. After the
transfer depreciation is calculated on the transfer price, i.e. a higher value. Therefore
depreciation charged is higher after the transfer and this extra cost must be
eliminated in the consolidated accounts, i.e. profits increased.
The extra depreciation should be removed from the purchaser's books. This is an
adjustment purely for consolidation purposes.
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