SubCo sells an asset to Parent at a realized loss. That loss is not recognized by the group in the year of the sale, because of the:
A) Acceleration rule.
B) Matching rule.
C) Transfer pricing rules.
D) Wash sale rule.
E) None of the above. The group deducts the loss.

Question

Quizplus · Accepted Answer

The matching rule requires that expenses and revenues be matched in the same accounting period. In this case, the loss on the sale of the asset should be recognized in the same period as the sale to be properly matched with the revenue generated from the sale. However, since the loss is not recognized in the year of the sale, it is likely being carried over as a deferred tax asset or used to offset other gains in future years.

SubCo Sells an Asset to Parent at a Realized Loss