Question

"I don't understand this concept of 'profit realisation' in relation to non-current assets that have been...

"I don't understand this concept of 'profit realisation' in relation to non-current assets that have been transferred between entities within a Group." Provide a response to explain how/why profit is realised on a non-current asset transfer.

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Answer #1

Let me explain by taking an example. Suppose the value of a non-current asset (eg. equipment) is Rs. 1,00,000 with a useful life of 10 years and no salvage value. So, every year the asset depreciates by a value of Rs. 10,000. After three years, the value of the asset is Rs. 70,000. If it is decided at that point to sell the asset at Rs 80,000, there will be a gain of Rs.10,000 (80,000-70,000) on sale of investment. This is known as profit realization on transfer of a non-current asset.

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