Belgium Ltd is the parent of France Ltd.On 1 January 20X3 Belgium sold a plant to France for $120 000.The plant had cost Belgium $100 000 on 1 January 20X1 and had been depreciated straight line over ten years with no scrap value.France used the same depreciation estimates but based their depreciation amounts on the transfer sale price.Both companies use the cost model.
Which is the correct set of consolidation elimination entries for 31 December 20X4 in respect of the plant?

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Quizplus · Accepted Answer

The correct set of consolidation elimination entries accounts for the unrealized profit on the sale of the plant from Belgium Ltd to France Ltd, the depreciation expense based on the transfer price, and the original cost and accumulated depreciation of the plant. Belgium sold the plant for $120,000, which was $20,000 above its original cost of $100,000, creating an unrealized profit of $20,000 that needs to be eliminated in consolidation. The plant was depreciated over 10 years, so the annual depreciation is $10,000 based on the original cost ($100,000/10 years) and $12,000 based on the transfer price ($120,000/10 years). By the end of 20X4, two years of depreciation would have been recognized, totaling $20,000 based on the original cost and $24,000 based on the transfer price. The difference in depreciation ($4,000) also needs to be adjusted. The elimination entries adjust for the unrealized profit, the excess depreciation charged, and align the asset's book value with its original cost and accumulated depreciation.