Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January

Question

Dalton Corp. owned 70% of the outstanding common stock of Shrugs Inc. On January 1, 2011, Dalton acquired a building with a ten-year life for $420,000. No salvage value was anticipated and the building was to be depreciated on the straight-line basis. On January 1, 2013, Dalton sold this building to Shrugs for $392,000. At that time, the building had a remaining life of eight years but still no expected salvage value. In preparing financial statements for 2013, how does this transfer affect the calculation of Dalton's share of consolidated net income?

Explanation / Answer

Consolidated net income must be reduced by $34,300.

Date Particulars Amount (in $) 01.01.2011 Dalton acquired a building with a ten-year life 420000 31.12.2011 Less: Depreciation 42000 01.01.2012 Book value as on 01.01.2012 378000 31.12.2012 Less: Depreciation 42000 01.01.2013 Book value as on 01.01.2013 336000 01.01.2013 Dalton sold this building to Shrugs 392000 01.01.2013 Gain on sale of building 56000 01.01.2013 Carrying value of building In Dalton's book 336000 In Shrugs book 392000 Difference 56000 The annual excessive depreciation = $56000/8 7000 01.01.2013 Gain on sale of building 56000 Less: Annual excessive depreciation 7000 Balance 49000 Less: Minority Interest = $49000*0.3 14700 Consolidated net income to be reduced by 34300

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