Question

P Ltd owns all of the shares of S Ltd. During the year ended 30 June 2020, P Ltd sells a land to S Ltd at a profit of $2,000. The consolidated worksheet entries in relation to the land sales, ignoring tax effect, for the year ending 30 June 2020 include:

a. DR Land, CR Gain on sale

b. DR Cash, CR Land

c. DR Gain on sale, CR Land

d. DR Land, CR Cash

Answer 1

The answer for te above question is option c. ; DR Cash, CR Land

Whenever there is a sale of land, the amount realized by way of cash will carry a debit entry and the Land Account will carry a credit entry. If the sale is made at a profit, that is, the amount paid in cash is higher than the amount of the cost of land, such as Gain on sale of land will carry a credit entry whereas in cases of losses, that is, where the amount paid in cash is lesser than the cost of Land, such Loss on sale of Land will hold a Debit entry.