ACCA Applied Knowledge · Financial Accounting · Subsidiaries
Max owns 100% of Mini. At the year end Max's payables include $15,000 owed to Mini, and Mini's receivables include $18,000 owed by Max. The difference is due to cash in transit sent by Max to Mini. After correcting for this, what amount is eliminated from consolidated receivables and payables respectively?
Both balances are eliminated at $15,000. Cash of $3,000 sent by Max but not yet received by Mini is treated as cash in transit, which reduces Mini's receivable to match Max's payable, so receivables and payables eliminated are both $15,000.
- AReceivables $18,000; payables $15,000
- BReceivables $15,000; payables $15,000
- CReceivables $18,000; payables $18,000Correct
- DReceivables $15,000; payables $18,000
Explanation
Cash in transit of $3,000 is recorded by Max as paid but not yet received by Mini. Dr Cash 3,000, Cr Mini's receivable from Max (Max's payable) is not the issue: Max's payable to Mini is only reduced by cash in transit. Mini's receivable is $18,000 and Max's payable is $15,000, so adding $3,000 cash in transit to Mini's side is wrong. Cash in transit reduces Mini's receivable to 15,000, so both sides eliminate $15,000.
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