Question

Sanders acquired 100% of Clinton on January 1, 2017. The transaction was not a bargain purchase. On the date of the acquisition, Clinton's Building account had a net book value of 3,338,416 and a fair value of 3,981,039. As of 1/1/2017, Clinton's buildings have a remaining life of 10 years and are depreciated on a straight-line basis with no salvage value.

When preparing Sanders' consolidated financial statements for 2017, what AAP adjustment must be made for Depreciation expense?

Answer 1

Answer:

In the given situation , sanders have obtained 100% of clinton .It has likewise been expressed that the exchange or transaction was not a bargain purchase . So when we do representing solidification we consider just the book estimation of the assets of the seller organization .

In a bargain purchase ,the reasonable value of the assets procured is more than the book value ,and the buy thought is made according to the reasonable worth .Hence the assets are additionally taken over at reasonable worth or fair value.

In any case, in the given situation as this isn't a bargain purchase ,the assets are to be taken at the book value.

Calculation of depreciation of acquired building on straight line method :

Book value of building = $ 3,338,416

No salvage value

Remaining useful life = 10 yrs

• Depreciation per year = $ 3,338,416 / 10 = $3,338,41.6

The following are the journal entries in the books of sanders :

Date	Particulars	Debit	Credit
1-1-2017	Building a/c Dr	$ 3,338,416
	To Cash / purchase consideration		$ 3,338,416
	(Narration - Building acquired on acquisition )
31-12-2017	Depreciation on building a/c Dr	$3,338,41.60
	To Building a/c		$3,338,41.60
	(Narration - Depreciation charged in the books of building a/c)
31-12-2017	Profit and loss a/c Dr	$3,338,41.60
	To Depreciation on building		$3,338,41.60
	(Narration - Depreciation on building transferred to profit and loss a/c)