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Tutorial 6 SC

TUTORIAL WORK

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19 views2 pages

Tutorial 6 SC

TUTORIAL WORK

Uploaded by

marykara1915
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACC711: Advance Financial Accounting and Reporting II

TUTORIAL 6: Consolidation – Intragroup transaction

1. Why is it necessary to make adjustments for intragroup transactions?

2. Why is it important to identify transactions as current or prior period transactions?

3. Where an intragroup transaction involves a depreciable asset, why is depreciation expense adjusted?

4. What is meant by “realisation of profits”?

5. When are profits realised on transfers of depreciable assets within the group?

6. Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd,
for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half
the items to Ningbo Ltd for $8000. The tax rate is 30%.
The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation
adjustment entries are as follows:

Sales Dr 15 000
Cost of Sales Cr 13 000
Inventory Cr 2 000
Deferred Tax Asset Dr 300
Income Tax Expense Cr 300

Required
A. Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line
basis the correct adjustment entries.
B. Determine the consolidation worksheet entries in the following year, assuming the inventory
is on-sold, and explain the adjustments on a line-by-line basis.

7. Koala Ltd owns all of the shares of Kangaroo Ltd. In relation to the following intragroup
transactions, all parts of which are independent unless specified, prepare the consolidation
worksheet adjusting entries for preparation of the consolidated financial statements as at 30
June 2016.

Assume an income tax rate of 30%.


(a) In April 2016, Koala Ltd sells inventory to Kangaroo Ltd for $12 000. This inventory had
previously cost Koala Ltd $8000, and it remains unsold by Kangaroo Ltd at the end of the
period.
(b) All the inventory in (a) is sold to Cockatoo Ltd, an external party, for $16 500 on
19 June 2016.
(c) Half the inventory in (a) is sold to Galah Ltd, an external party, for $7200 on 20 June 2016.
The remainder is still unsold at the end of the period.
(d) Koala Ltd, in January 2016, sold inventory for $8000. This inventory had been sold to it by
Kangaroo Ltd in the previous year. It had originally cost Kangaroo Ltd $4800, and was sold
to Koala Ltd for $9600.
8. Emu Ltd owns all of the shares of Cassowary Ltd. In relation to the following intragroup
transactions, all parts of which are independent unless specified, prepare the consolidation
worksheet adjusting entries for preparation of the consolidated financial statements as at 30
June 2016.

Assume an income tax rate of 30%.

(a) Emu Ltd sold inventory to Cassowary Ltd on 1 September 2015 for $27 000. This inventory
had cost Emu Ltd $18 000. One-third of the inventory was sold by Cassowary Ltd to Goanna
Ltd for $13 000 and one-third to Galah Ltd for $13 200.

(b) Emu Ltd manufactures certain items which it then markets through Cassowary Ltd. During
the current period, Emu Ltd sold items for $18 000 to Cassowary Ltd at cost plus 20%.
Cassowary Ltd has sold 75% of these transferred items at 30 June 2016.

(c) During June 2016, Cassowary Ltd declared a $2000 dividend. The dividend was paid in
August 2017.

(d) In January 2016, Cassowary Ltd paid a $4500 interim dividend.

(e) Emu Ltd sold a warehouse to Cassowary Ltd for $150 000. This had originally cost Emu Ltd
$123 000. The transaction took place on 1 January 2015. Cassowary Ltd charges
depreciation at 5% p.a. on a straight-line basis.

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