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

question 35

Multiple Choice

A non-current asset was sold by Subsidiary Limited to Parent Limited during the 2013/14 financial year.The carrying amount of the asset at the time of the sale was $700 000.As part of the consolidation process,the following journal entry was passed. $\begin{array}{|l|r|r|}\hline 30 \text { June } 2014 & & \\\hline \text { Dr Profit on sale of asset } & 200000 & \\\hline \text { Dr Asset } & 300000 & \\\hline \text { Cr Accumulated depreciation } & & 500000 \\\hline\end{array}$ What (a) amount did Parent Limited pay Subsidiary Limited for the asset; (b) was the cost of the asset as shown in the books of Subsidiary Limited?

• A) (a) $900 000; (b) $1 400 000
• B) (a) $900 000; (b) $1 200 000
• C) (a) $700 000; (b) $1 200 000
• D) (a) $900 000; (b) $800 000

---

Definitions:

Double-entry Accounting

An accounting method that records each transaction twice, as both a debit and a credit, to maintain the balance of the accounting equation.

Debit Account Balances

Balances that appear on the left side of the ledger, indicating resources or expenses.

Credit Account Balances

The amount owed by a borrower on a credit account, reflecting any purchases, payments, charges, or adjustments.

Equity

The value of an owner’s interest in a property or a business, after deducting liabilities and debts.