A wholly-owned subsidiary's plant assets have a book value of $40 million and a fair value of $35 million at the date of acquisition. The plant assets have a remaining life at the date of acquisition of 10 years, straight-line. It is now three years since the acquisition. Assume an accumulated depreciation account is not used, i.e. all adjustments are made directly to the net plant assets account. Consolidation eliminating entry (R) at the end of the current year has what effect on the net plant assets account?

Question

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The original revaluation reduced plant assets by $5,000,000. In the third year, the revaluation at the beginning of the year reduces plant assets by: $5,000,000 - (($5,000,000/10) x 2) = $4,000,000.

A Wholly-Owned Subsidiary's Plant Assets Have a Book Value of $40