July Tree Ltd sold ar
Chapter24: Multistate Corporate Taxation
Section: Chapter Questions
Problem 38P
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This is the consolidated
How do we come to the
Transcribed Image Text:Further to E4.1, entities within the Tree Ltd group also undertook the following intragroup
transactions during 20X7 and 20X8. The tax rate is 30% for all accounting periods.
1 On 1 July 20X7 Tree Ltd sold an item of plant to Branch Ltd for $500 000 in cash. The
original cost of the plant was $600 000. Tree Ltd had adopted an accounting policy whereby
the plant was being depreciated on a straight line basis over its useful life of six years.
The carrying amount of the plant in Tree Ltd financial statements at the date of sale was
$400 000. Subsequent to the transfer, Branch Ltd depreciated the plant on a straight line
basis over its remaining useful life of four years.
Transcribed Image Text:Ref Account
1
Plant
Accumulated depreciation
(Reinstate accumulated depreciation)
Gain on sale
Plant
(Eliminate intra-group transfer of plant and gain on sale)
Debit $
Accumulated depreciation
Depreciation expense
(Depreciation adjustment on intra-group asset transfer)
200,000
100,000
DTA
Income tax expense
(URP on intra-group transfer tax adjustment $100,000 x 30%)
30,000
25,000
Credit $
7,500
200,000
100,000
30,000
25,000
Income tax expense
DTA
7,500
(Tax on depreciation adjustment on intra-group asset transfer $25,000 @ 30%)
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