Adam Ltd Sold an Item of Plant to Its Subsidiary

question 13

Multiple Choice

Adam Ltd sold an item of plant to its subsidiary Eve Ltd on 1 January 2017 for $50 000. The asset had cost Adam Ltd $60 000 when acquired on 1 January 2015. At that time, the remaining useful life of the plant was assessed at 5 years. The adjustment necessary on consolidation to reflect the tax effect of the depreciation adjustment for the year ended 30 June 2017 will result in a decrease in:

• A) deferred tax assets.
• B) deferred tax liabilities.
• C) income tax expense.
• D) current tax liability.

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Definitions:

Compounding Interval

The frequency at which the earned interest is added to the principal balance of an investment, affecting the total compound interest over time.

Monthly Payment

A specified amount of money that a borrower agrees to pay to a lender at regular monthly intervals, often associated with loans or mortgages.

Loan

A sum of money given to a person or entity with the expectation of repayment of the original sum along with agreed interest over a specified period.

Nominal Rate

Refers to the interest rate before adjustments for inflation or other factors.