Australia Business Combination & Depreciation

[Dratini]

Hi,

I'm currently working through some exercises for business combinations, and more specifically, wholly owned subsidiaries. For my course I've been provided with some revision exercises, and upon completing those I've moved on to a previous exam to put the revision into practice.

I've attached an image that shows the Business Valuation Combination Reserve (BCVR) worksheet journal entries for equipment and the related depreciation.

Figure 1.0 refers to the revision exercise, and figures 2.0 and 2.1 refer to the previous exam exercise. I've also provided only the relevant figures for the problem I'm having.

As you will be able to see, I've tried to enter in the data in figure 2.0 the very same way I had done for figure 1.0, which according to the solutions was correct. However the solutions for figure 2.0 reveal to me that the correct journal entries are what is portrayed in figure 2.1.

I would very much like to know what it is that causes these two exercises to be accounted for differently. Thank you very much.

 

[Dratini]

Update:

For figure 1.0, the question states in parentheses "Equipment (net of $70,000 depreciation)". Keeping in mind that the book value is $80,000 and the fair value is $100,000, I'm assuming that the depreciation and book value are added together to make $150,000, therefore requiring the equipment to be devalued by $50,000 to meet the fair value of $100,000.

I guess this is why equipment is credited $50,000.

Would love some confirmation as to whether this is the right way to go about it.