I came across a question that requires bcvr (business combination valuation reserve) for an equipment that hass a cost of 30000, carry amount of 24000 and fair value of 32000. I have no idea how to do it because most of the time fair value is lower than cost. Usually when fair value is lower, I would do:
debit accumulated depreciation,
credit deferred tax liability
credit bcrv
debit equipment

anyone able to tell me how to do it when fair value is higher than cost?

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Originally Posted by haun

I came across a question that requires bcvr (business combination valuation reserve) for an equipment that hass a cost of 30000, carry amount of 24000 and fair value of 32000. i have no idea how to do it coz most of the time fair value is lower than cost. usually when fair value is lower, i would do:
debit accumulated depreciation,
credit deferred tax liability
credit bcrv
debit equipment

anyone able to tell me how to do it when fair value is higher than cost?

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For preparing consolidated financial statements, IFRS3(Revised) and IAS27(Revised) provide that the net assets acquired should be measured at their fair value on the date of acquisition.

An entry will be made in the work sheet as:
Debit Equipment 8,000
Credit Revaluation Surplus or BCVR if you like 8,000

In post acquisition period the subsidiary company will record extra depreciation on 8,000, which will be credited to accumulated depreciation

do I need to credit bcrv (8000*0.7) and credit deferred tax expense (8000*0.3) or just 8000 bcrv?

there was a similar question in the book that has cost of 480000, carry amount 310000 and fair value of 330000. The bcvr giving in the book was:

debit accumulated depreciation 170000
credit equipment 150000
credit deferred tax liability 6000
credit bcrv 1400

what I want to know is if I can follow what the book has done with the question I posted above?

sorry, if you can't understand my question properly because I'm clearly new to accounting and is really confused about it.

If I do what the book did, I would get:

Debit accumulated depreciation 6000
Credit equipment 8000
Credit deferred tax liability 2400
Credit bcrv 5600

Which is completely wrong.

Fair Value adjustments may either be recorded in the subsidiary's financial statements or it may just be used for consolidation purposes only without any recording in the subsidiary's accounts.

If the subsidiary records fair value adjustment, then the enrry is:

Debit Accumulated depreciation 6000
Credit Equipment 6000
This will now be the carrying value of 24000

Debit Equipment 8000
Credit Revaluation Surplus 8000
Now the equipment is reported at fair value

Depreciation will be charged by the subsidiary on 32000 for all subsequent periods. Additional depreciation as a result of revaluation of 8000 will be transferred from Revaluation Surplus to Retained Earnings in the Statement of Changes in Equity.

For deferred tax liability you will have to compare the tax base and accounting base of the value of net assets and charged accordingly.

When the fair value is less than the carrying value, there is an impairment loss to be accounted for by the subsidiary,

1) Write back the depreciation to the carrying amount from cost.

DR Accumulated Depreciation 6000
CR Equipment 6000

2) Recognise the fair value adjustment at acquisition date, with a 30% tax rate, a BCVR entry.

DR Equipment 8000
CR BCVR 5600 (Business Combination Valuation Reserve, a temporary equity account)
CR DTL 2400 (Deferred Tax Liability, to recognise the 30% tax effect)

3) Following this you do a BCVR entry which closes BCVR to retained earnings.
4) Pre-Acquisition Entries
5) Intra Group Transactions
6) Consolidated Worksheet
7) Consolidated Financial Statements