On January 1 20X7,a Parent Entity Emborough Ltd Acquired 20

question 4

Multiple Choice

On January 1 20X7,a parent entity Emborough Ltd acquired 20% of the share capital of Bernborough Ltd and the power to participate in the operating and financial policies of that company for $4,500,000 cash.In the period from the date of acquisition to June 30 20X7,Bernborough Ltd earned a profit for the period of $400,000 (after tax of $200,000) ,recognised a post-acquisition asset revaluation increment of $500,000 (deferred tax liability $100,000) and declared a dividend of $200,000.At June 30 20X7,Emborough Ltd recognised its equity in the dividend. In respect of the increase in the investment recognised in the consolidated balance sheet at June 30 20X7 of the group controlled by Emborough Ltd,a deferred tax liability would be recognised of:

• A) $36,000
• B) $60,000
• C) No deferred tax liability would be recognised since the increase is not a temporary difference.
• D) None of the above.

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