Matthew Limited, a subsidiary entity, sold a non-current asset at a profit to its parent entity during the current period. The adjustment necessary on consolidation to reflect the tax effect of this transaction will result in an:

Question

Quizplus · Accepted Answer

When a subsidiary sells an asset to its parent at a profit, for consolidation purposes, the profit is eliminated because it's an intra-group transaction and not realized from the group's perspective. The tax effect of this unrealized profit leads to an increase in deferred tax assets, reflecting the future tax benefit when the asset is sold outside the group or the profit is realized.

Matthew Limited, a Subsidiary Entity, Sold a Non-Current Asset at a Profit