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Apple Plc Owns All the Issued Capital of Pear Plc

Question 39

Multiple Choice

Apple Plc owns all the issued capital of Pear Plc.On 1 July 2014,Pear Plc purchased an item of plant from Apple Plc for £1 000 000.Apple Plc had owned the plant for 5 years.It originally cost £1 350 000 and the accumulated depreciation at 1 July 2004 is £562 500.The remaining useful life of the equipment on the date of sale to Pear Ltd is estimated to be 7 years.The pattern of benefits is expected to be obtained from the equipment evenly over its useful life.The tax rate is 30%.Round all calculations to the nearest dollar. What are the consolidation journal entries required for this inter-company transaction for the periods ended 30 June 2015 and 30 June 2016?


A)  Period ended 30 June 2015: Dr Gain on sale 212500Cr Plant 212500Dr Deferred tax asset 63750Cr Income tax expense 63750Dr Accumulated depreciation - plant 30357Cr Depreciation expense 30357Dr Income tax expense 9107Cr Deferred tax asset 9107 Period ended 30 June 2016Dr Opening retained earnings 148750Dr Plant 350000Cr Accumulated depreciation - plant 498750Dr Accumulated depreciation - plant 70339Cr Opening retained earnings 39982Cr Depreciation expense 30357Dr Opening retained earnings 9107Dr Income tax expense 9107\begin{array}{|l|l|r|l|}\hline {\text { Period ended } 30 \text { June 2015: }} & & \\\hline & & \\\hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\\hline \mathrm{Cr} & \text { Plant } & & 212500 \\\hline & & \\\hline \mathrm{Dr} & \text { Deferred tax asset } & 63750& \\\hline \mathrm{Cr} & \text { Income tax expense } & & 63750 \\\hline\\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 30357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 30357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Income tax expense } & 9107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } & & 9107 \\\hline\\\hline \text { Period ended 30 June } 2016& & & \\ \hline\\\hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\\hline \mathrm{Dr} & \text { Plant } & 350000 & \\\hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 498750 \\\hline & & & \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 70339 & \\\hline \mathrm{Cr} & \text { Opening retained earnings } & & 39982 \\\hline \mathrm{Cr} & \text { Depreciation expense } & &30357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Opening retained earnings } & & 9107 \\\hline \mathrm{Dr} & \text { Income tax expense } & & 9107 \\\hline\end{array}

B)  Period ended 30 June 2015 : \text { Period ended } 30 \text { June } 2015 \text { : }
Dr Gain on sale 212500Dr Plant 350000Cr Accumulated depreciation - plant 562500Dr Deferred tax asset 63750Cr Income tax expense 63750Dr Accumulated depreciation - plant 30357Cr Depreciation expense 3035 Dr  Income tax expense 9107Cr Deferred tax asset 910\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\\hline \mathrm{Dr} & \text { Plant } & 350000 & \\\hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 562500 \\\hline\\\hline \mathrm{Dr} & \text { Deferred tax asset } & 63750 & \\\hline \mathrm{Cr} & \text { Income tax expense } & & 63750 \\\hline & & & \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 30357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 3035 \\\hline\\\hline \text { Dr } & \text { Income tax expense } & 9107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } & & 910\\\hline\end{array}

 Period ended 30 June 2016 : \text { Period ended } 30 \text { June } 2016 \text { : }
Dr Opening retained earnings 148750Dr Deferred tax asset 63750Dr Plant 350000Cr Accumulated depreciation - plant 562500Dr Accumulated depreciation - plant 60714Cr Opening retained earnings 30357Cr Depreciation expense 30357Dr Opening retained earnings 9107Dr Income tax expense 9107Cr Deferred tax asset 18214\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\\hline \mathrm{Dr} & \text { Deferred tax asset } & 63750 & \\\hline \mathrm{Dr} & \text { Plant } & 350000 & \\\hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 562500 \\\hline\\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 60714 & \\\hline \mathrm{Cr} & \text { Opening retained earnings } & & 30357 \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 30357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Opening retained earnings } & 9107 & \\\hline \mathrm{Dr} & \text { Income tax expense } & 9107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } && 18214 \\\hline\end{array}

C)  Period ended 30 June 2015: Dr Gain on sale 212500Cr Plant 212500Dr Accumulated depreciation - plant 80357Cr Depreciation expense 80357Dr Income tax expense 24107Cr Deferred tax asset 24107\begin{array}{|c|l|r|r}\hline \text { Period ended 30 June 2015: } & & \\\hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\\hline \mathrm{Cr} & \text { Plant } & & 212500 \\\hline & & & \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 80357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 80357 \\\hline\\\hline \mathrm{Dr} & \text { Income tax expense } & 24107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } & & 24107 \\\hline\end{array}

 Period ended 30 June 2016 : \text { Period ended } 30 \text { June } 2016 \text { : }
Dr Opening retained earnings 148750Cr Plant 148750Dr Accumulated depreciation - plant 80357Cr Depreciation expense 80357Dr Income tax expense 24107Cr Deferred tax asset 24107\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\\hline \mathrm{Cr} & \text { Plant } & & 148750 \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } &80357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 80357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Income tax expense } & 24107 & \\ \hline \mathrm{Cr} & \text { Deferred tax asset } & & 24107 \\\hline\end{array}

D) Apple Plc owns all the issued capital of Pear Plc.On 1 July 2014,Pear Plc purchased an item of plant from Apple Plc for £1 000 000.Apple Plc had owned the plant for 5 years.It originally cost £1 350 000 and the accumulated depreciation at 1 July 2004 is £562 500.The remaining useful life of the equipment on the date of sale to Pear Ltd is estimated to be 7 years.The pattern of benefits is expected to be obtained from the equipment evenly over its useful life.The tax rate is 30%.Round all calculations to the nearest dollar. What are the consolidation journal entries required for this inter-company transaction for the periods ended 30 June 2015 and 30 June 2016? A) \begin{array}{|l|l|r|l|} \hline {\text { Period ended } 30 \text { June 2015: }} & & \\ \hline & & \\ \hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\ \hline \mathrm{Cr} & \text { Plant } & & 212500 \\ \hline & & \\ \hline \mathrm{Dr} & \text { Deferred tax asset } & 63750& \\ \hline \mathrm{Cr} & \text { Income tax expense } & & 63750 \\ \hline\\ \hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 30357 & \\ \hline \mathrm{Cr} & \text { Depreciation expense } & & 30357 \\ \hline & & & \\ \hline \mathrm{Dr} & \text { Income tax expense } & 9107 & \\ \hline \mathrm{Cr} & \text { Deferred tax asset } & & 9107 \\ \hline\\ \hline \text { Period ended 30 June } 2016& & & \\ \hline\\ \hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\ \hline \mathrm{Dr} & \text { Plant } & 350000 & \\ \hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 498750 \\ \hline & & & \\ \hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 70339 & \\ \hline \mathrm{Cr} & \text { Opening retained earnings } & & 39982 \\ \hline \mathrm{Cr} & \text { Depreciation expense } & &30357 \\ \hline & & & \\ \hline \mathrm{Dr} & \text { Opening retained earnings } & & 9107 \\ \hline \mathrm{Dr} & \text { Income tax expense } & & 9107 \\ \hline \end{array} B) \text { Period ended } 30 \text { June } 2015 \text { : } \begin{array}{|l|l|r|r|} \hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\ \hline \mathrm{Dr} & \text { Plant } & 350000 & \\ \hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 562500 \\ \hline\\ \hline \mathrm{Dr} & \text { Deferred tax asset } & 63750 & \\ \hline \mathrm{Cr} & \text { Income tax expense } & & 63750 \\ \hline & & & \\ \hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 30357 & \\ \hline \mathrm{Cr} & \text { Depreciation expense } & & 3035 \\ \hline\\ \hline \text { Dr } & \text { Income tax expense } & 9107 & \\ \hline \mathrm{Cr} & \text { Deferred tax asset } & & 910\\ \hline \end{array} \text { Period ended } 30 \text { June } 2016 \text { : } \begin{array}{|l|l|r|r|} \hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\ \hline \mathrm{Dr} & \text { Deferred tax asset } & 63750 & \\ \hline \mathrm{Dr} & \text { Plant } & 350000 & \\ \hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 562500 \\ \hline\\ \hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 60714 & \\ \hline \mathrm{Cr} & \text { Opening retained earnings } & & 30357 \\ \hline \mathrm{Cr} & \text { Depreciation expense } & & 30357 \\ \hline & & & \\ \hline \mathrm{Dr} & \text { Opening retained earnings } & 9107 & \\ \hline \mathrm{Dr} & \text { Income tax expense } & 9107 & \\ \hline \mathrm{Cr} & \text { Deferred tax asset } && 18214 \\ \hline \end{array} C) \begin{array}{|c|l|r|r} \hline \text { Period ended 30 June 2015: } & & \\ \hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\ \hline \mathrm{Cr} & \text { Plant } & & 212500 \\ \hline & & & \\ \hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 80357 & \\ \hline \mathrm{Cr} & \text { Depreciation expense } & & 80357 \\ \hline\\ \hline \mathrm{Dr} & \text { Income tax expense } & 24107 & \\ \hline \mathrm{Cr} & \text { Deferred tax asset } & & 24107 \\ \hline \end{array} \text { Period ended } 30 \text { June } 2016 \text { : } \begin{array}{|l|l|r|r|} \hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\ \hline \mathrm{Cr} & \text { Plant } & & 148750 \\ \hline \mathrm{Dr} & \text { Accumulated depreciation - plant } &80357 & \\ \hline \mathrm{Cr} & \text { Depreciation expense } & & 80357 \\ \hline & & & \\ \hline \mathrm{Dr} & \text { Income tax expense } & 24107 & \\ \hline \mathrm{Cr} & \text { Deferred tax asset } & & 24107 \\ \hline \end{array} D)

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