How should additional depreciation on fair value adjustments of associates be treated in the Consolidated Statement of Financial Position (CSFP)?

The treatment of additional depreciation on fair value adjustments of associates is crucial for accurate financial reporting in the Consolidated Statement of Financial Position. When an entity acquires an associate, the identifiable assets and liabilities of that associate are assessed at fair value. If the fair value of the assets is higher than their carrying amounts, this results in additional depreciation that needs to be accounted for over the useful life of those assets.

Recognizing this additional depreciation in the associate's profit since acquisition is essential because it ensures that the consolidated financial statements reflect a true and fair view of the financial position and performance of the group. The increased depreciation expense will reduce the reported profit of the associate, which in turn impacts the investment income recognized by the parent company from its equity in the associate. This method aligns with the equity method of accounting for associates, where the parent company must adjust its share of the associate's profit to account for differences arising from fair value adjustments.

Therefore, the treatment of additional depreciation allows for accurate income reporting and adheres to the principles of financial reporting, ensuring that stakeholders have access to information that reflects the economic reality of the investments made in associates.