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21 March, 17:29

A subsidiary has plant assets with a fair value of $100 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 amounts for eliminating entry (R) and (O) are (respectively):

a-$40 million and $4 million

b - $36 million and $2 million

c-$34 million and $0

d - $32 million and $5 million

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Answers (1)
  1. 21 March, 18:56
    0
    Option "B" is the correct answer to the following question

    Explanation:

    Given:

    Fair value of plant = $100 million

    Book value of plant = $60 million

    Estimated life = 20 year

    Computation of gain on revaluation:

    Gain on revaluation = Fair value of plant - Book value of plant

    Gain on revaluation = $100 million - $60 million

    Gain on revaluation = $40 million

    Computation of per year extra wright off:

    Per year extra wright off = $40 million / 20 year

    Per year extra wright off = $2 million per year

    Two-year elimination amount is 2-year * Per year extra wright off

    Two-year elimination amount is $4 million

    Opening balance of third-year amortization is $40 million - $4 million = $36 million

    So, the amount of eliminating entry is $36 million and write off the value of $2 million
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