Zeus Ltd Owns 100% of the Issued Capital of Ares

Multiple Choice

Zeus Ltd owns 100% of the issued capital of Ares Ltd.On 1 July 2012,Zeus Ltd purchased an item of equipment from Ares Ltd for $800 000.Ares had owned the equipment for 2 years.It originally cost $890 000 and the accumulated depreciation was $178 000 at the time of sale.The equipment has been depreciated over this time,but not written down or revalued.The remaining useful life of the equipment at 1 July 2012 is estimated to be 8 years.Zeus Ltd expects the benefits to be obtained from the equipment to be evenly received over its useful life.The tax rate is 30%. What are the consolidation journal entries required for this inter-company transaction for the period ended 30 June 2014?

A)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Opening retained earnings } & 88000 & \\\hline \mathrm { Cr } & \text { Equipment } & & 88000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 22000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 6600 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\\hline\end{array}$$
B)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Equipment } & 88000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 88000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 25000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 12500 \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 12500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 3300 & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 6600 \\\hline\end{array}$$
C)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Opening retained earnings } & 61600 & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Dr } & \text { Equipment } & 90000 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation—equipment } & & 178000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 11000 \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 11000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\\hline\end{array}$$
D)
$$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Opening retained earnings } & 61600 & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Cr } & \text { Equipment } & & 88000 \\\hline\\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\\hline \mathrm { Cr } & \text { Depreciation expense } & &22000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\\hline\end{array}$$