If an Entity Sells a Non-Current Asset at a Profit

question 50

Multiple Choice

If an entity sells a non-current asset at a profit to another entity within the same group, which of the following consolidation adjustments is necessary to reflect the tax effect?

• A) Dr Deferred tax asset
• B) Dr Deferred tax liability
• C) Dr Tax expense
• D) Cr Deferred tax asset

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Definitions:

Cumulative Effect

The total impact of a change in accounting principle on the net income reported in prior periods, if that change had been applied retrospectively.

Accounting Principle

A fundamental guideline or rule that underpins the financial reporting and accounting practices.

Common Shares Outstanding

The total number of shares of a corporation's stock that are currently owned by investors, including those held by institutional investors and company officers.

Net Income

The total earnings of a company after deducting all expenses, including taxes and operating costs, from its total revenue.