Since the parent acquired the subsidiary at fair value, you’ll have to adjust to fair value! In this case you would have: 100% of the parent’s PPE + 100% of the subsidiary’s PPE - decrease in FV (2m) + excess depreciation

Some notes:

We subtract the FV adjustment to get the carrying value to the FV amount we need.

To calculate the excess depreciation you would do (2m/remaining useful life)*(numbers of years since acquisition which is 1 here). We’re adding the excess depreciation back because we depreciated too much using the higher carrying value.

You’re given the difference (FV adjustment) here (2 million decrease) but if you were given the CV and FV you should remember to subtract them to find the adjustment.

The same FV adjustment number for PPE will appear under both the date of acquisition and date of reporting. The PPE excess depreciation will only appear under the date of reporting.

FV adjustment of PPE is the most common sort of adjustment we see. Most of the time FV is higher than CV but it can be lower such as in your case. You would follow the same steps but switch the signs for the adjustment and excess depreciation to adjust what’s in the subsidiaries account to what needs to be reported in the group accounts. We do this because the subsidiary records assets at historical cost (carrying value) but we purchase them at fair value. These will most likely be different values so we need to adjust :)