Question 1

It is not necessary to eliminate intra-group profit when assets sold within the group are sold later, but within the same reporting period, to an external party.

Accepted Answer

Intra-group profit does not need to be eliminated when assets sold within the group are sold later, but within the same reporting period, to an external party.

Question 2

The following is the only consolidation elimination entry required for an intra-group loan made and repaid during the reporting period:
Dr Loan payable
Cr Loan receivable

Accepted Answer

The elimination of intra-group transactions, including loans made and repaid within the same reporting period, typically involves more than just reversing the loan payable and receivable. It may also require adjustments for any interest income and expense recorded on the intra-group loan to ensure these do not affect the consolidated financial statements.

Question 3

Subsidiary buys inventory from parent at a transfer price of $150 000.The profit margin included in this was $50 000.
The group will need to reduce its cost of sales by $100 000 in total.

Accepted Answer

The profit margin of $50,000 is included in the transfer price of $150,000. To eliminate the profit margin from the group's cost of sales, the cost of sales should be reduced by the profit margin amount, which is $50,000. However, the question states that the group needs to reduce its cost of sales by $100,000, which implies that the entire transfer price is being eliminated from the cost of sales, not just the profit margin.

Question 4

Parent sells plant to Subsidiary for $500 000 on January 1 20X9.The original cost to Parent was $400 000 on 1 January 20X7.The plant is depreciated straight line over ten years with no scrap value.
The correct consolidation elimination entry for the plant, at 1 January 20X9, is:
$\begin{array}{llcc}
  \text { Dr Profit on sale } &\$ 100000   \
 \text {Cr Plant  } &&\$ 100000 \
\end{array}$

Accepted Answer

The elimination entry for the plant should be:
Dr Plant (to eliminate intercompany sale) $500,000
Cr Retained earnings (to reverse depreciation taken by Parent) $40,000
Cr Deferred tax liability (to reverse deferred tax impact of difference in depreciation) $16,000
There is no need for a profit on sale or loss on sale in this scenario because the sale was at the original cost.

Question 5

Intra-group bills discounted with recourse during the reporting period require the following consolidation elimination:
Dr Bills payable
Cr Bills receivable

Accepted Answer

Intra-group bills discounted with recourse during the reporting period do not require consolidation elimination as they represent an actual liability and asset of the group. Therefore, no elimination entry is needed.

Question 6

When eliminating an intra-group sale of a non-current asset only the sale price and any profit on sale need be eliminated.

Accepted Answer

When eliminating an intra-group sale of a non-current asset, both the sale price and any profit or loss on sale need to be eliminated, along with any related accumulated depreciation or impairment loss.

Question 7

The acceptor of a bill of exchange is conceptually the same as a borrower.

Accepted Answer

The acceptor of a bill of exchange is the person who agrees to pay the amount specified in the bill, hence they are liable to make the payment. This is similar to a borrower who receives funds and is liable to repay them.

Question 8

When assets sold within the group are sold later, but within the same reporting period, to an external party, consolidated profit is then invariably the difference between the ultimate selling price and the original cost of the goods.

Accepted Answer

When assets sold within the group are sold later to an external party within the same reporting period, consolidated profit is the difference between the ultimate selling price and the original cost of the goods.

Question 9

Intra-group transactions on inventory always give rise to a deferred tax asset because CA>group CA.

Accepted Answer

Intra-group transactions on inventory may or may not give rise to a deferred tax asset depending on the accounting treatment adopted by the group. If the group follows the same accounting policies and recognises the same amount of profit on intra-group transactions as it would if the transactions were with external parties, then there is no deferred tax asset. However, if the group recognises less profit on intra-group transactions than it would if the transactions were with external parties, then there may be a deferred tax asset. This happens because the intra-group profit will be eliminated on consolidation, leading to a decrease in the group's taxable income and thus a deferred tax asset.

Question 10

AASB 112 specifically exempts long-lived assets from giving rise to tax-effect assets and liabilities.

Accepted Answer

AASB 112, which deals with income taxes, does not specifically exempt long-lived assets from giving rise to tax-effect assets and liabilities. Instead, it requires the recognition of deferred tax liabilities or assets for temporary differences between the carrying amount of assets and liabilities in the financial statements and their tax bases, which can include long-lived assets.

Quiz 19: Intra-Group Transactions

It is not necessary to eliminate intra-group profit when assets sold within the group are sold later, but within the same reporting period, to an external party.

The following is the only consolidation elimination entry required for an intra-group loan made and repaid during the reporting period: Dr Loan payable Cr Loan receivable

Subsidiary buys inventory from parent at a transfer price of $150 000.The profit margin included in this was $50 000. The group will need to reduce its cost of sales by $100 000 in total.

Intra-group bills discounted with recourse during the reporting period require the following consolidation elimination: Dr Bills payable Cr Bills receivable

When eliminating an intra-group sale of a non-current asset only the sale price and any profit on sale need be eliminated.

The acceptor of a bill of exchange is conceptually the same as a borrower.

When assets sold within the group are sold later, but within the same reporting period, to an external party, consolidated profit is then invariably the difference between the ultimate selling price and the original cost of the goods.

Intra-group transactions on inventory always give rise to a deferred tax asset because CA>group CA.

AASB 112 specifically exempts long-lived assets from giving rise to tax-effect assets and liabilities.