Question 1

The journal entries to eliminate unrealised profit in closing inventory at 30 June 2014 were as follows: $$\begin{array} { | l | r | r | } 
\hline 30 \text { June } 2014 & & \
\hline \text { Dr Cost of goods sold } & 50000 & \
\hline \text { Cr Inventory } & & 50000 \
\hline & & \
\hline \text { Dr Deferred tax asset } & 15000 & \
\hline \text { Cr Income tax expense } & & 15000 \
\hline
\end{array}$$ What are the journal entries to eliminate the unrealised profits in opening inventory the following period?
A)
$$\begin{array} { | l | r | r | } 
\hline \text { 1 July } 2014 & & \
\hline \text { Dr Cost of goods sold } & 50000 & \
\hline \text { Cr Inventory } & & 50000 \
\hline & & \
\hline \text { Dr Deferred tax asset } & 15000 & \
\hline \text { Cr Income tax expense } & & 15000 \
\hline
\end{array}$$
B)
$$\begin{array} { | l | r | r | } 
\hline \text { 1 July } 2014 & & \
\hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \
\hline \text { Cr Cost of goods sold } & & 50000 \
\hline & & \
\hline \text { Dr Deferred tax asset } & 15000 & \
\hline \text { Cr Opening retained earnings (1 July 2014) } & & 15000 \
\hline
\end{array}$$
C)
$$\begin{array} { | l | r | r | } 
\hline \text { 1 July } 2014 & & \
\hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \
\hline \text { Cr Inventory } & & 50000 \
\hline & & \
\hline \text { Dr Deferred tax asset } & 15000 & \
\hline \text { Dr Opening retained earnings (1 July 2014) } & & 15000 \
\hline
\end{array}$$
D)
$$\begin{array} { | l | r | r | } 
\hline \text { 1 July } 2014 & & \
\hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \
\hline \text { Cr Cost of goods sold } & & 50000 \
\hline & & \
\hline \text { Dr Income tax expense } & 15000 & \
\hline \text { Cr Opening retained earnings (1 July 2014) } & & 15000 \
\hline
\end{array}$$

Accepted Answer

The answer of The journal entries to eliminate unrealised profit...

Question 2

Detail at least five types of intragroup transactions that require elimination adjustments to be made in the consolidated accounts

Accepted Answer

The answer of Detail at least five types of intragroup...

Question 3

Explain,with examples,the difference between dividend payments out of pre-acquisition profits and dividend payments out of post-acquisition profits,and the manner in which they are accounted for in consolidation accounting.

Accepted Answer

The answer of Explain,with examples,the difference between dividend payments out...

Question 4

Alice Ltd sold inventory items to its subsidiary Mad Hatter Ltd and had the following intercompany transactions:
Cost of inventory $100 000 sold for $125 000 for the year ended 30 June 2012.Half of the inventory items were sold by Mad Hatter Ltd to external parties before the financial year end 30 June 2012.
Cost of inventory $75 000 sold for $100 000 for the year ended 30 June 2013.Half of the inventory items were sold by Mad Hatter Ltd to external parties before the financial year end 30 June 2013.
Ignoring taxes,which of the following statements is correct with respect to this transaction only for the year ended 30 June 2013?
A) Consolidated sales will decrease by $125 000.
B) Consolidated sales will increase by $25 000.
C) Consolidated profit will decrease by $12 500.
D) There will be no change in the consolidated profit.

Accepted Answer

For the year ended 30 June 2013, the intercompany transactions must be eliminated in consolidation. Since half of the inventory was sold to external parties, the unrealized profit on the remaining half still within the group must be eliminated. However, the question asks specifically about the effect on consolidated profit, not the unrealized profit adjustment. The sales and cost of sales between Alice Ltd and Mad Hatter Ltd are eliminated against each other in consolidation, meaning there's no net effect on the consolidated profit from this intercompany transaction alone.

Question 5

Aladdin Ltd sells inventory for a profit to its subsidiary Jasmine Ltd to be used as machinery in Jasmine Ltd's production process.The consolidation worksheet of Aladdin Ltd with respect to this transaction only should ­not include:
A) a debit to sales.
B) a credit to cost of sales.
C) a credit to inventories.
D) a credit to machinery.

Accepted Answer

The consolidation worksheet should not include a credit to inventories because the inventory has been sold and is now classified as machinery in Jasmine Ltd's production process.

Question 6

A non-current asset was sold by Subsidiary Limited to Parent Limited on 30 June 2014.The carrying amount of the asset at the time of the sale was $700 000.As part of the consolidation process,the following journal entry was passed. $$\begin{array} { | l | r | r | } 
\hline 30 \text { June } 2014 & & \
\hline \text { Dr Profit on sale of asset } & 200000 & \
\hline \text { Dr Asset } & 300000 & \
\hline \text { Cr Accumulated depreciation } & & 500000 \
\hline & & \
\hline \text { Dr Deferred tax asset } & 60000 & \
\hline \text { Cr Income tax expense } & & 60000 \
\hline
\end{array}$$ Assuming there is another ten years of useful life remaining for the asset,what are the journal entries at 30 June 2016 to adjust for depreciation?
A)
$$\begin{array} { | l | r | r | } 
\hline 30 \text { June } 2016 & & \
\hline \text { Dr Accumulated depreciation } & 40000 & \
\hline \text { Cr Depreciation } & & 40000 \
\hline & & \
\hline \text { Dr Income tax expense } & 12000 & \
\hline \text { Cr Deferred tax asset } & & 12000 \
\hline
\end{array}$$
B)
$$\begin{array} { | l | r | r | } 
\hline 30 \text { June } 2016 & & \
\hline \text { Dr Accumulated depreciation } & 30000 & \
\hline \text { Cr Depreciation } & & 30000 \
\hline & & \
\hline \text { Dr Income tax expense } & 9000 & \
\hline \text { Cr Deferred tax asset } & & 9000 \
\hline
\end{array}$$
C)
$\begin{array}{|l|r|r|}
\hline 30 \text { June } 2016 & & \
\hline \text { Dr Accumulated depreciation } & 60000 & \
\hline \text { Cr Depreciation } & & 30000 \
\hline \text { Cr Opening retained earnings (1 July 2016) } & & 30000 \
\hline & & \
\hline \text { Dr Opening retained earnings (1 July 2016) } & 9000 & \
\hline \text { Dr Income tax expense } & 9000 & \
\hline \text { Cr Deferred tax asset } & & 18000\
\hline
\end{array}$
D)
$$\begin{array} { | l | r | r | } 
\hline 30 \text { June 2016 } & & \
\hline \text { Dr Accumulated depreciation } & 40000 & \
\hline \text { Cr Depreciation } & & 20000 \
\hline \text { Cr Opening retained earnings (1 July 2016) } & & 20000 \
\hline & & \
\hline \text { Dr Opening retained earnings (1 July 2016) } & 6000 & \
\hline \text { Dr Income tax expense } & 6000 & \
\hline \text { Cr Deferred tax asset } & & 12000 \
\hline
\end{array}$$

Accepted Answer

The answer of A non-current asset was sold by Subsidiary...

Question 7

Explain the accounting treatment for impairment to the subsidiary investment when dividends have been paid out of pre-acquisition profits.

Accepted Answer

The answer of Explain the accounting treatment for impairment to...

Question 8

Tookey Ltd sold inventory items (with a cost of $75 000)to its subsidiary Milky Ltd for $135 000.A third of the inventory items were sold by Milky Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?
A) Consolidated sales will decrease by $75 000.
B) Consolidated sales will decrease by $95 000.
C) Consolidated profit will decrease by $60 000.
D) Consolidated profit will decrease by $40 000.

Accepted Answer

Consolidated profit will decrease by $40 000.The profit on the sale of inventory from Tookey Ltd to Milky Ltd is $60 000 ($135 000 - $75 000). However, since a third of the inventory was sold by Milky Ltd to external parties, only two-thirds of this profit will be eliminated in consolidation, resulting in a decrease in consolidated profit of $40 000 ($60 000 x 2/3).

Question 9

Explain,with examples and the assumptions made,why it is necessary to pass consolidation journal entries to adjust for unrealised profits existing in opening inventory.

Accepted Answer

The answer of Explain,with examples and the assumptions made,why it...

Question 10

Woody Ltd sold inventory items to its subsidiary Buzz Lightyear Ltd and had the following intercompany transactions:
Cost of inventory $300 000 sold for $375 000 for the year ended 30 June 2012.One third of the inventory items were sold by Buzz Lightyear Ltd to external parties before the financial year end 30 June 2012.
Cost of inventory $100 000 sold for $75 000 for the year ended 30 June 2013.Half of the inventory items were sold by Buzz Lightyear Ltd to external parties before the financial year end 30 June 2013.
Ignoring taxes,which of the following statements is correct with respect to this transaction only for the year ended 30 June 2013
A) Consolidated sales will decrease by $100 000.
B) Consolidated sales will increase by $275 000.
C) Consolidated profit will increase by $62 500.
D) Consolidated profit will increase by $12 000.

Accepted Answer

Consolidated profit will increase by $62 500.The profit on the sale of the inventory is $75,000 - $100,000 = $25,000. Since half of the inventory was sold to external parties, the consolidated profit will increase by $25,000 / 2 = $12,500. In addition, the cost of goods sold will decrease by $100,000, resulting in a further increase in consolidated profit of $100,000 * (1 - tax rate). Assuming a tax rate of 30%, the consolidated profit will increase by $100,000 * (1 - 0.3) = $70,000. Therefore, the total increase in consolidated profit is $12,500 + $70,000 = $82,500.

Question 11

Blue Ltd sold inventory items (with a cost of $90 000)to its subsidiary Maroon Ltd for $120 000.Half of the inventory items were sold by Maroon Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?
A) Consolidated sales will decrease by $60 000.
B) Consolidated sales will decrease by $100 000.
C) Consolidated profit will decrease by $15 000.
D) Consolidated profit will decrease by $20 000.

Accepted Answer

Consolidated profit will decrease by $15,000 because the intra-group sale margin ($30,000) is only realized on the half of the inventory that remains unsold within the group. The profit on the half that was sold externally ($15,000) is eliminated on consolidation.

Question 12

Explain why unrealised profits and losses between entities within a group are eliminated on consolidation.Discuss when these transactions are realised for consolidated statement purposes.

Accepted Answer

The answer of Explain why unrealised profits and losses between...

Question 13

A non-current asset was sold by Subsidiary Limited to Parent Limited during the 2013/14 financial year.The carrying amount of the asset at the time of the sale was $1 400 000.As part of the consolidation process,the following journal entry was passed. $\begin{array}{|l|r|l|}
\hline 30 \text { June } 2014 & & \
\hline \text { Dr Profit on sale of asset } & 400000 & \
\hline \text { Dr Asset } & 600000 & \
\hline \text { Cr Accumulated depreciation } & & 1000000 \
\hline
\end{array}$ What (a)amount did Parent Limited pay Subsidiary Limited for the asset; (b)was the cost of the asset as shown in the books of Subsidiary Limited?
A) (a) $1 800 000; (b) $1 400 000
B) (a) $1 800 000; (b) $1 600 000
C) (a) $1 400 000; (b) $2 400 000
D) (a) $1 800 000; (b) $2 400 000

Accepted Answer

The journal entry indicates a profit on sale of $400,000, meaning the sale price was $1,800,000 ($1,400,000 carrying amount + $400,000 profit). The asset's cost in Subsidiary's books was $2,400,000, as the accumulated depreciation of $1,000,000 was credited to reduce the asset's carrying amount to $1,400,000.

Question 14

Lilo Ltd sells inventory items to its subsidiary Stitch Ltd.If during the financial year 2013,the unrealised profits in ending inventory in Stitch Ltd exceeds that of its unrealised profits in beginning inventory,which of the following statements is correct with respect to Lilo Ltd's consolidated financial statements after considering these transactions only?
A) Consolidated profit will decrease.
B) Consolidated deferred tax liability will increase.
C) Consolidated ending inventory will decrease.
D) Consolidated sales will be unaffected.

Accepted Answer

The increase in unrealised profits in ending inventory compared to beginning inventory means that more profit is being deferred, which reduces the consolidated profit for the year.

Question 15

Explain why gains recognised on sale of assets between entities within a group are reversed on consolidation.

Accepted Answer

The answer of Explain why gains recognised on sale of...

Question 16

Penny Ltd sells inventory items to its subsidiary Bolt Ltd.If during the financial year 2013,the unrealised profits in ending inventory in Bolt Ltd is less than its unrealised profits in beginning inventory,which of the following statements is correct with respect to Penny Ltd's consolidated financial statements after considering these transactions only?
A) Consolidated profit will increase.
B) Consolidated deferred tax liability will increase.
C) Consolidated ending inventory will decrease.
D) Consolidated sales will be unaffected.

Accepted Answer

The decrease in unrealised profits in ending inventory compared to the beginning inventory results in a lower deduction from consolidated profits, thus increasing the consolidated profit.

Question 17

What is the amount of unrealised profit that needs to be eliminated at the end of the period,in the following situation,where Morecombe Limited is the parent of Wise Limited? (Ignore the tax effect.)
Morecombe purchases 500 units of inventory for $20 each.Morecombe sells this entire inventory to Wise at a mark up of 25%.Wise then sells half of the inventory to an external party.Half of the remaining amount (after the external sale)is sold back to Morecombe for $2500.
A) cannot determine from the information given
B) $300
C) $625
D) $1250

Accepted Answer

The unrealised profit is calculated on the inventory that remains within the group at the end of the period. Morecombe initially purchases inventory for $20 each and sells it to Wise with a 25% markup, making the sale price $25 each ($20 * 1.25). Wise sells half of the 500 units externally, leaving 250 units. Half of the remaining 250 units (125 units) are sold back to Morecombe, leaving 125 units within the group. The unrealised profit per unit is $5 (the markup), so for 125 units, the unrealised profit is $625 (125 units * $5).

Question 18

A non-current asset was sold by Subsidiary Limited to Parent Limited during the 2013/14 financial year.The carrying amount of the asset at the time of the sale was $700 000.As part of the consolidation process,the following journal entry was passed. $\begin{array}{|l|r|r|}
\hline 30 \text { June } 2014 & & \
\hline \text { Dr Profit on sale of asset } & 200000 & \
\hline \text { Dr Asset } & 300000 & \
\hline \text { Cr Accumulated depreciation } & & 500000 \
\hline
\end{array}$ What (a)amount did Parent Limited pay Subsidiary Limited for the asset; (b)was the cost of the asset as shown in the books of Subsidiary Limited?
A) (a) $900 000; (b) $1 400 000
B) (a) $900 000; (b) $1 200 000
C) (a) $700 000; (b) $1 200 000
D) (a) $900 000; (b) $800 000

Accepted Answer

The journal entry indicates a profit on sale of $200,000 and an increase in asset value of $300,000, suggesting the sale price was $900,000 ($700,000 carrying amount + $200,000 profit). The accumulated depreciation adjustment of $500,000 implies the original cost was $1,200,000 ($700,000 carrying amount + $500,000 accumulated depreciation).

Question 19

Discuss the reasoning behind the elimination all dividends receivable/payable between entities within the group during the consolidation process.

Accepted Answer

The answer of Discuss the reasoning behind the elimination all...

Question 20

Aladdin Ltd sold inventory items (with a cost of $100 000)to its subsidiary Genie Ltd for $120 000.Half of the inventory items were sold by Genie Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?
A) Consolidated sales will decrease by $60 000.
B) Consolidated sales will decrease by $100 000.
C) Consolidated profit will decrease by $10 000.
D) Consolidated profit will decrease by $20 000.

Accepted Answer

Consolidated profit will decrease by $10,000 because the intra-group sale's markup ($20,000) is only realized on the half of the inventory that remains unsold by Genie Ltd. The sold portion's profit is eliminated on consolidation, leaving only the unrealized profit from the unsold portion to affect consolidated profit.

Quiz 28: Further Consolidation Issues I: Accounting for Intragroup Transactions

Detail at least five types of intragroup transactions that require elimination adjustments to be made in the consolidated accounts

Explain,with examples,the difference between dividend payments out of pre-acquisition profits and dividend payments out of post-acquisition profits,and the manner in which they are accounted for in consolidation accounting.

Aladdin Ltd sells inventory for a profit to its subsidiary Jasmine Ltd to be used as machinery in Jasmine Ltd's production process.The consolidation worksheet of Aladdin Ltd with respect to this transaction only should not include:

Explain the accounting treatment for impairment to the subsidiary investment when dividends have been paid out of pre-acquisition profits.

Tookey Ltd sold inventory items (with a cost of $75 000) to its subsidiary Milky Ltd for $135 000.A third of the inventory items were sold by Milky Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

Explain,with examples and the assumptions made,why it is necessary to pass consolidation journal entries to adjust for unrealised profits existing in opening inventory.

Blue Ltd sold inventory items (with a cost of $90 000) to its subsidiary Maroon Ltd for $120 000.Half of the inventory items were sold by Maroon Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

Explain why unrealised profits and losses between entities within a group are eliminated on consolidation.Discuss when these transactions are realised for consolidated statement purposes.

Explain why gains recognised on sale of assets between entities within a group are reversed on consolidation.

Discuss the reasoning behind the elimination all dividends receivable/payable between entities within the group during the consolidation process.

Aladdin Ltd sold inventory items (with a cost of $100 000) to its subsidiary Genie Ltd for $120 000.Half of the inventory items were sold by Genie Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

Quiz 28: Further Consolidation Issues I: Accounting for Intragroup Transactions

Detail at least five types of intragroup transactions that require elimination adjustments to be made in the consolidated accounts

Explain,with examples,the difference between dividend payments out of pre-acquisition profits and dividend payments out of post-acquisition profits,and the manner in which they are accounted for in consolidation accounting.

Aladdin Ltd sells inventory for a profit to its subsidiary Jasmine Ltd to be used as machinery in Jasmine Ltd's production process.The consolidation worksheet of Aladdin Ltd with respect to this transaction only should ­not include:

Explain the accounting treatment for impairment to the subsidiary investment when dividends have been paid out of pre-acquisition profits.

Explain,with examples and the assumptions made,why it is necessary to pass consolidation journal entries to adjust for unrealised profits existing in opening inventory.

Blue Ltd sold inventory items (with a cost of $90 000) to its subsidiary Maroon Ltd for $120 000.Half of the inventory items were sold by Maroon Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

Explain why unrealised profits and losses between entities within a group are eliminated on consolidation.Discuss when these transactions are realised for consolidated statement purposes.

Explain why gains recognised on sale of assets between entities within a group are reversed on consolidation.

Discuss the reasoning behind the elimination all dividends receivable/payable between entities within the group during the consolidation process.

Aladdin Ltd sold inventory items (with a cost of $100 000) to its subsidiary Genie Ltd for $120 000.Half of the inventory items were sold by Genie Ltd to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

Aladdin Ltd sells inventory for a profit to its subsidiary Jasmine Ltd to be used as machinery in Jasmine Ltd's production process.The consolidation worksheet of Aladdin Ltd with respect to this transaction only should not include: