Wholly owned Subsidiary has the following balances at control date 20X1:
$$\begin{array} { l l }
\text { Capital } & \$ 500000 \
\text { Asset revaluation reserve } & \$ 200000 \
\text { Retained profits } & \$ 100000
\end{array}$$
During 20X2 Subsidiary generates $100 000 profits and revalues plant downwards by $375 000.The asset revaluation reserve all relates to previous revaluation of plant.
During 20X3 Subsidiary incurs $50 000 of losses.
The substitution elimination in 20X3 for asset revaluation reserve would be Cr.$200 000.

Question

Wholly owned Subsidiary has the following balances at control date 20X1:
 $$\begin{array} { l l } 
\text { Capital } & \$ 500000 \
\text { Asset revaluation reserve } & \$ 200000 \
\text { Retained profits } & \$ 100000
\end{array}$$ 
During 20X2 Subsidiary generates $100 000 profits and revalues plant downwards by $375 000.The asset revaluation reserve all relates to previous revaluation of plant.
During 20X3 Subsidiary incurs $50 000 of losses.
The substitution elimination in 20X3 for asset revaluation reserve would be Cr.$200 000.

Quizplus · Accepted Answer

The asset revaluation reserve relates to previous revaluation of plant. In 20X2, the plant is revalued downwards by $375,000. This means that the asset revaluation reserve should be reduced by $375,000. The substitution elimination in 20X3 for asset revaluation reserve would therefore be Cr.$200,000.

Wholly Owned Subsidiary Has the Following Balances at Control Date