Consolidation Fixed Asset Sale by Parent Co to Subsidiary.

Hi,

There is a question of consolidation in Dec 2007 named Plateau. In that question there is an adjustment,
“On 1 October 2006, Plateau (Parent Co) sold an item of plant to Savannah (Subsidiary Co) at its agreed fair value of $2.5 million. Its carrying amount prior to sale was was $2 million. The estimated remaining life of the plant at the date of sale was five years (straight line depreciation).”
Acquisition date is 1 October 2006 and Balance Sheet date is 30 September 2007.

Savannah Retained Earnings
-at 30 September 2006 –> $6.5 million
-for the year ended 30 September 2007 –> $2.4 million

The examiner has calculated Savannah’s Post acquisition profit as $2.9 million, in which he had included above mentioned sale amount i.e. $0.5 million.

My question is how can the examiner just include this $0.5 million figure in calculating Savannah’s post acquisition profit, but if he had done so why there is no depreciation amount included?

Technically, the sale of non current asset held by parent to subsidiary is the item of consolidated retained earnings of parent company, where the entry is passed that
retained earning (debit) and asset (credit).