Question

Portsmouth Corporation, a British corporation, is a wholly owned subsidiary of Salem Corporation, a U.S. corporation. During the year, Portsmouth reported the following income:

$250,000 interest income received from a loan to an unrelated French corporation.
$100,000 dividend income received from a less than 1 percent owned unrelated Dutch corporation.
$150,000 rent income from an unrelated British corporation on property Portsmouth actively manages.
$500,000 gross profit from the sale of inventory manufactured by Portsmouth in Great Britain and sold to a 100 percent owned subsidiary in Germany.

What amount of subpart F income does Portsmouth recognize in the current year?

Answer 1

Facts of the given question:

1.portsmouth corporation its a british corporation

2.salem corporation its a US corporation

the first one was the 100% subsidary of the second one i.e salem corporation was invested and acquired the 100% stake in portsmouth corporation

and during the current reported financial year the subsidary of salem corporation earned the followiing incomes as a part of its normal business activity from different sources of income

1. INTEREST INCOME (on loan given) from --------- French corporation (Unrelated to portsmouth)-------$2,50,000

2.DIVIDEND INCOME (on investment of < 1%) from---------Dutch corp(unrelated to portsmouth)----------$1,00,000

3.RENTAL INCOME (on property held) from ----------British corporation(unrelated to portsmouth)--------$1,50,000

4.GROSS PROFIT (on sale of inventory to 100% subsidary) from --------- germony corporation( related to potsmouth)------------$5,00,000

Requirement of the question what subpart F income should recognise:

Note: it is assume that sub part F means Finance income should recognise in books of pportsmouth for the current year

total amount of income that was refelected in the books of ports mouth in profit and loss account was as follows

SI NO	Nature of Income reflected in Profit and loss account	Amount($)
1	Gross profit	5,00,000
2	interest income	2,50,000
3	Dividend income	1,00,000
4	rental income	1,50,000
	total	10,00,000

entire amount of finace income that is income generated from the investing and finacing business was 3,50,000

should recognise in the books of portsmouth for the current financial year as per the revenue recognition concept stated by respected acconting standards these incmes should recognise in books when they actually received or right to receive was arisen so conditions satisfied

note: if the question asks the amount of income to be recognised in books for the financial year then answer was as follows

total amount of income generated from financinf activies 350000

amont of income generated from renting of property   150000

amount of gross profit nil

total 500000

this only will recognise as income for the current financial year

NOTE:

as per the accounting standard only if sales made to outsiders then only prfit have to recognise here sales made only to 100% subsidary it means just a transfer to internal one no actual profit made so dont recognise this as income for the current year

CONCLUSION:  as ur asjking question like subpart f income so it gives me some ambiguity so i gave u two answers

1. if only finance income 350000 this has to recognise in books

2. if currnet year income then 500000 this has to recognise in books