On 16 May 2017, Zebra Ltd sold equipment to its subsidiary Nando Ltd for $100 000, this asset having a carrying amount at time of sale of $80 000. The equipment was regarded by Zebra Ltd as a depreciable non-current asset, being depreciated at 10% p.a. on cost, whereas Nando Ltd records the machinery as inventory. The asset was sold by Nando Ltd before 30 June 2017. The worksheet entry for the year ended 30 June 2017 would include which of the following adjustments?

Question

Quizplus · Accepted Answer

Since Nando Ltd records the equipment as inventory, the sale of the equipment would be recorded as a credit to inventory and a debit to cost of sales for the carrying amount of $80,000. Therefore, the correct adjustment would be to credit cost of sales for $20,000 (i.e. $100,000 sale price - $80,000 carrying amount) and debit inventory for $20,000. The entries would be as follows:
Dr Inventory $20,000
Cr Cost of sales $20,000

On 16 May 2017, Zebra Ltd Sold Equipment to Its