Question

The stock of Mulberry Corporation is owned by Archana (60%) and Anar (40%), who are mother and daughter.

Answer 1

Solution and Explanantion:

Determining the gain or loss recognized by M corporation

Loss to be recognised = Market Value – Purchase Value

$=\ 575000-\ 650000$= $75000

Thus, loss to be recognised by the “M” corporation is $75000

Determining the gain or loss of A:

$Loss by \mathrm{A}= Purchase Value - Liability - Actual basis of \mathrm{M}$

$=[(\ 575000-\ 425000) * 40 \%]-\ 100000$

$=\ 60000-\ 100000$

= ($40000)

Thus, loss to be recognised by A is $40000