Parent owns 80% of Subsidiary. Parent transferred an asset to Subsidiary at a va

Question

Parent owns 80% of Subsidiary. Parent transferred an asset to Subsidiary at a value of $15,000 on January 1, 2012. The original cost to Parent was $20,000 and the accumulated depreciation at the date of transfer was $8,000. The asset had a useful life of 5 years when originally acquired, with a residual value of zero. The useful life at the date of transfer remains at 3 years. Full allowance is made for depreciation in the year of purchase and none in the year of sale.

Required:

Calculate the adjustment for the consolidated statement of financial position as at December 31, 2012. (show workings)

Explanation / Answer

At the time of sale parent must have passed this entry Cash $15,000 Accumulated Depreciation $8,000 Gain on sale of asset $3,000 Asset $20,000 and subsidiary must have passed this entry Asset $15,000 Cash $15,000 Now, in consolidated financial statement, we have to restore asset at its original cost and eliminate the gain on sale of asset We will pass the following adjustment entry Asset $5,000 Gain on sale of Asset $3,000 Accumulated Depreciation $8,000 Asset is debited by $5000 (20000-15000) to restate it to its original value, and accumulated depreciation is credited by $8000 to again restate it and gain is debited to eliminate it.

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