Exam 11: Consolidation: Intragroup Transactions

On 16 May 2017, Zebra Ltd sold equipment to its subsidiary Nando Ltd for $100 000, this asset having a carrying amount at time of sale of $80 000. The equipment was regarded by Zebra Ltd as a depreciable non-current asset, being depreciated at 10% p.a. on cost, whereas Nando Ltd records the machinery as inventory. The asset was sold by Nando Ltd before 30 June 2017. The worksheet entry for the year ended 30 June 2017 would include which of the following adjustments?

The effect of an intragroup sale of inventories in a prior period, where the inventories are still on hand at the end of the current period, is that a credit adjustment is made to inventory in the current period.

Where an intragroup sale of an asset at a profit has been made and the asset was classified as plant in the selling entity's books, but subsequently classified as inventories in the buying entity's books, a credit adjustment is required against cost of sales in the year of sale.

When an interest bearing loan is advanced by a parent to a subsidiary, there is no tax effect consolidation entry required as assets and liabilities are reduced equally.

A parent entity sold a depreciable non-current asset to a subsidiary entity for $5600. The asset originally cost $6000 and at the date of sale accumulated depreciation was $1000. The amount of the unrealised gain on sale to be eliminated is:

The elimination of the full effects of intragroup transactions is required in the preparation of consolidated financial statements.

The effect of an intragroup sale of inventories at a profit where the inventories are still on hand at the end of the reporting period is that both profit and the inventory asset are overstated.

During the year ended 30 June 2017, a parent entity rents a warehouse from a subsidiary entity for $200 000. The company tax rate is 30%. Which of the following is the consolidation adjustment entry needed at reporting date to eliminate the transaction? Rent revenue 200000 Rent expense 200000 Rent revenue 200000 Rent expense 200000 Income tax expense 60000 Deferred tax liability 60000 Rent revenue 200000 Rent expense 200000 Deferred tax asset 600000 Income tax expense 60000 Rent expense 200000 Rent revenue Dr 200000

Where there is an intragroup sale of inventories and the inventories have been sold to external parties prior to the end of the reporting period, no adjustment is required on consolidation.

Which of the following items is an example of an intragroup service?

When a depreciable non-current asset is sold between entities within a group, any gain recognised on the sale is eliminated and realised through the future use of the asset by the group. This results in reduced depreciation and income tax expenses in future periods.

A subsidiary sold a quantity of inventories to its parent entity at a before-tax profit of $12 000. The original cost of the inventories to the subsidiary was $41 000. At the end of the year all of the inventories were still on hand. The consolidation adjustment entry to eliminate this transaction will include which of the following line items?

Adam Ltd sold an item of plant to its subsidiary Eve Ltd on 1 January 2017 for $50 000. The asset had cost Adam Ltd $60 000 when acquired on 1 January 2015. At that time, the remaining useful life of the plant was assessed at 5 years. The adjustment necessary on consolidation to reflect the tax effect of the depreciation adjustment for the year ended 30 June 2017 will result in a decrease in:

A subsidiary sold inventories to its parent for $50 000. The inventories originally cost the subsidiary $38 000. At balance sheet date, the parent had sold 50% of the inventories to an external party. The company tax rate is 30%. Which of the following is the deferred tax item that is recognised on consolidation?

The effect of an intragroup sale of inventories in a prior period, where the inventory is still on hand at the end of the prior period but is sold in the current period, is that a credit adjustment is made to income tax expense in the subsequent period.

When a depreciable non-current asset is sold between entities within a group, any gain recognised on the sale is eliminated and realised through consolidation adjustments which result in increased depreciation expenses in future periods.

Chancellor Limited provided a loan of $1 500 000 to its subsidiary Park Limited. On consolidation, which of the following adjustments is needed in relation to this intragroup loan?

A parent sold some inventories to its subsidiary for $55 000. The goods had originally cost the parent $40 000. At the end of the year all of the inventories were still on hand. The consolidation adjustment entry to eliminate this transaction will include the following line items?

A subsidiary sold inventories to its parent for $60 000. The inventories had previously cost the subsidiary $48 000. By reporting date, the parent had sold 75% of the inventories to a party outside the group. The company tax rate is 30%. Which of the following are the adjustment entries in the consolidation worksheet at reporting date?

A consolidation worksheet adjustment to eliminate the effect of interest revenue and interest expense relating to intragroup loans has which of the following tax effects?