1. A subsidiary has plant assets with a fair value of $70 million and book value of $60 million at the date of acquisition. The plant assets have a remaining life, as of the date of acquisition, of 20 years, straight-line. You are consolidating the accounts at the end of the third year since acquisition, and the subsidiary still owns the plant assets. The amount by which the plant assets are revalued in eliminating entry (R) is: A. $9.5 million B. $9 million C. $8.5 million D. $10 million

Question

Business

Killian

12 May, 11:40

1. A subsidiary has plant assets with a fair value of $70 million and book value of $60 million at the date of acquisition. The plant assets have a remaining life, as of the date of acquisition, of 20 years, straight-line. You are consolidating the accounts at the end of the third year since acquisition, and the subsidiary still owns the plant assets. The amount by which the plant assets are revalued in eliminating entry (R) is: A. $9.5 million B. $9 million C. $8.5 million D. $10 million

+1

Answers (1)

Know the Answer?

Lukas Guzman · Answer 1

B. $9 million

Explanation:

firstly we are given a book value of the plant assets which is $60 million which in calculating the depreciation we use straight line method which is using the assets book value to depreciate over the assets lifespan which is 20 years so to calculate the depreciation for 1 year = $60 million / 20 years = $3 million which is the depreciation for one year then we multiply this amount for 3 years which will be $3 million X 3years = $9 million which needs to be adjusted and the plant assets must be revalued by in order to have the correct fair value of the plant assets.