A Non-Current Asset Was Sold by Subsidiary Plc to Parent

question 9

Multiple Choice

A non-current asset was sold by Subsidiary Plc to Parent Plc during the 2013/14 financial year.The carrying amount of the asset at the time of the sale was £1 400 000.As part of the consolidation process,the following journal entry was passed. $$\begin{array} { | l | r | l | } \hline 30 \text { June } 2014 & & \\\hline \text { Dr Profit on sale of asset } & 400000 & \\\hline \text { Dr Asset } & 600000 & \\\hline \text { Cr Accumulated depreciation } & & 1000000 \\\hline\end{array}$$ What (a) amount did Parent Plc pay Subsidiary Plc for the asset; (b) was the cost of the asset as shown in the books of Subsidiary Plc?

• A)(a) £1 800 000; (b) £1 400 000
• B)(a) £1 800 000; (b) £1 600 000
• C)(a) £1 400 000; (b) £2 400 000
• D)(a) £1 800 000; (b) £2 400 000

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Definitions:

Cost of Goods Sold

A financial metric that represents the direct costs attributable to the production of goods sold by a company.

Inventory

The cumulative quantity of products and materials a company possesses for the purpose of selling or utilizing in manufacturing processes.

LIFO

Last In, First Out, an inventory valuation method where the last items added to inventory are the first ones considered sold.

Inventory Balance

The total value of all inventory items held by a company at the end of a reporting period, including raw materials, work-in-progress, and finished goods.