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

question 44

Multiple Choice

A non-current asset was sold by Subsidiary Limited to Parent Limited on 30 June 2014.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. $$\begin{array} { | l | r | r | } \hline 30 \text { June } 2014 & & \\\hline \text { Dr Profit on sale of asset } & 200000 & \\\hline \text { Dr Asset } & 300000 & \\\hline \text { Cr Accumulated depreciation } & & 500000 \\\hline & & \\\hline \text { Dr Deferred tax asset } & 60000 & \\\hline \text { Cr Income tax expense } & & 60000 \\\hline\end{array}$$ Assuming there is another ten years of useful life remaining for the asset,what are the journal entries at 30 June 2016 to adjust for depreciation?

• A)
• \[\begin{array} { | l | r | r | }
• \hline 30 \text { June } 2016 & & \\
• \hline \text { Dr Accumulated depreciation } & 40000 & \\
• \hline \text { Cr Depreciation } & & 40000 \\
• \hline & & \\
• \hline \text { Dr Income tax expense } & 12000 & \\
• \hline \text { Cr Deferred tax asset } & & 12000 \\
• \hline
• \end{array}\]
• B)
• \[\begin{array} { | l | r | r | }
• \hline 30 \text { June } 2016 & & \\
• \hline \text { Dr Accumulated depreciation } & 30000 & \\
• \hline \text { Cr Depreciation } & & 30000 \\
• \hline & & \\
• \hline \text { Dr Income tax expense } & 9000 & \\
• \hline \text { Cr Deferred tax asset } & & 9000 \\
• \hline
• \end{array}\]
• C)
• \(\begin{array}{|l|r|r|}
• \hline 30 \text { June } 2016 & & \\
• \hline \text { Dr Accumulated depreciation } & 60000 & \\
• \hline \text { Cr Depreciation } & & 30000 \\
• \hline \text { Cr Opening retained earnings (1 July 2016) } & & 30000 \\
• \hline & & \\
• \hline \text { Dr Opening retained earnings (1 July 2016) } & 9000 & \\
• \hline \text { Dr Income tax expense } & 9000 & \\
• \hline \text { Cr Deferred tax asset } & & 18000\\
• \hline
• \end{array}\)
• D)
• \[\begin{array} { | l | r | r | }
• \hline 30 \text { June 2016 } & & \\
• \hline \text { Dr Accumulated depreciation } & 40000 & \\
• \hline \text { Cr Depreciation } & & 20000 \\
• \hline \text { Cr Opening retained earnings (1 July 2016) } & & 20000 \\
• \hline & & \\
• \hline \text { Dr Opening retained earnings (1 July 2016) } & 6000 & \\
• \hline \text { Dr Income tax expense } & 6000 & \\
• \hline \text { Cr Deferred tax asset } & & 12000 \\
• \hline
• \end{array}\]