Question 1

Which of the following statements is incorrect?

Accepted Answer

A)  Profits/losses on intragroup services are immediately realised to the group. 
B)  It is necessary to have a tax-effect adjustment when adjusting for intragroup services. 
C)  Adjustments for previous periods' intragroup services affect only statement of financial position accounts, but only if the fees have not been paid. 
D)  Adjustments for current period intragroup services affect statement of profit or loss and other comprehensive income accounts and statement of financial position accounts if the fees have not been paid and only statement of profit or loss and other comprehensive income accounts otherwise. 
A)  Profits/losses on intragroup services are immediately realised to the group. 
B)  It is necessary to have a tax-effect adjustment when adjusting for intragroup services. 
C)  Adjustments for previous periods' intragroup services affect only statement of financial position accounts, but only if the fees have not been paid. 
D)  Adjustments for current period intragroup services affect statement of profit or loss and other comprehensive income accounts and statement of financial position accounts if the fees have not been paid and only statement of profit or loss and other comprehensive income accounts otherwise. B

Question 2

Which of the following statements is incorrect?

Accepted Answer

A)  consolidated profit arises only in relation to transactions with entities external to the group. 
B)  consolidated revenues are earned only from transactions with entities external to the group. 
C)  consolidated assets are recorded at the cost to the legal entity that owns them. 
D)  consolidated liabilities are obligations to entities external to the group. 
A)  consolidated profit arises only in relation to transactions with entities external to the group. 
B)  consolidated revenues are earned only from transactions with entities external to the group. 
C)  consolidated assets are recorded at the cost to the legal entity that owns them. 
D)  consolidated liabilities are obligations to entities external to the group. C

Question 3

Margaret Company made an advance of $45 000 to its subsidiary, Jack Limited. Margaret Company charges interest of $15 000 on this advance. The consolidation adjustment to eliminate the advance is:

Accepted Answer

A)  DR Interest revenue $60 000 CR Interest expense $60 000 
B)  DR Advance from Margaret Co. $45 000 CR Advance to Jack Ltd $45 000 
C)  DR Interest expense $60 000 CR Interest revenue $60 000 
D)  DR Advance to Jack Ltd $45 000 CR Advance from Margaret Co. $45 000 
A)  DR Interest revenue $60 000 CR Interest expense $60 000 
B)  DR Advance from Margaret Co. $45 000 CR Advance to Jack Ltd $45 000 
C)  DR Interest expense $60 000 CR Interest revenue $60 000 
D)  DR Advance to Jack Ltd $45 000 CR Advance from Margaret Co. $45 000 B

Question 4

Paul Limited provided an advance of $150 000 to its subsidiary Caitlin Limited. On consolidation, the following adjustment is needed in relation to this intragroup advance:

Accepted Answer

A)  no adjustment is needed. 
B)  DR Advances to Caitlin Ltd $150 000 CR Advances from Paul Ltd $150 000 
C)  DR Advances from Paul Ltd $150 000 CR Advances to Caitlin Ltd $150 000 
D)  DR Advances from Paul Ltd $150 000 CR Cash $150 000 
A)  no adjustment is needed. 
B)  DR Advances to Caitlin Ltd $150 000 CR Advances from Paul Ltd $150 000 
C)  DR Advances from Paul Ltd $150 000 CR Advances to Caitlin Ltd $150 000 
D)  DR Advances from Paul Ltd $150 000 CR Cash $150 000

Question 5

During the current period, a subsidiary entity sold inventories to a parent entity for $40 000. The inventories had previously cost the subsidiary entity $36 000. By reporting date the parent entity had sold 75% of inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at reporting date is:

Accepted Answer

A)  $\begin{array}{cccc}
\text { Sales revenue } & \mathrm{Dr} & 40,000 &  \
\text { Cost of sales } & \mathrm{Cr} & &36,000 \
\text { Inventories } & \mathrm{Cr} & &4,000 \
\text { Deferred tax asset } & \mathrm{Dr} & 1,200 & \
\text { Income tax expense } & \mathrm{Cr} & &1,200 
\end{array}$ 
B)  $\begin{array}{ccrr}
\text { Sales revenue } & \mathrm{Dr} & 40000 & \
\text { Cost of sales } & \mathrm{Cr} & &  39000 \
\text { Inventories } & \mathrm{Cr} & &1000 \
\text { Deferred tax asset } & \mathrm{Dr} & 300 & \
\text { Income tax expense } & \mathrm{Cr} & & 300
\end{array}$ 
C)  $$\begin{array} { l l r r } 
\text { Sales reverue } & \mathrm { Dr } & 30000 \
\text { Cost of sales } & \mathrm { Cr } & & 27000 \
\text { Irventories } & \mathrm { Cr } & & 3000 \
\text { Deferred tax asset } & \mathrm { Dr } & 900 & \
\text { Income tax expense } & \mathrm { Cr } & & 900
\end{array}$$ 
D)  $$\begin{array} { c l c c } 
\text { Sales reverue } & \mathrm { Dr } & 10000 \
\text { Cost of sales } & \mathrm { Cr } & & 9000 \
\text { Irventories } & \mathrm { Cr } & & 1000 \
\text { Deferred tax asset } & \mathrm { Dr } & 300 & \
\text { Income tax expense } & \mathrm { Cr } & & 300
\end{array}$$ 
A)  $\begin{array}{cccc}
\text { Sales revenue } & \mathrm{Dr} & 40,000 &  \
\text { Cost of sales } & \mathrm{Cr} & &36,000 \
\text { Inventories } & \mathrm{Cr} & &4,000 \
\text { Deferred tax asset } & \mathrm{Dr} & 1,200 & \
\text { Income tax expense } & \mathrm{Cr} & &1,200 
\end{array}$ 
B)  $\begin{array}{ccrr}
\text { Sales revenue } & \mathrm{Dr} & 40000 & \
\text { Cost of sales } & \mathrm{Cr} & &  39000 \
\text { Inventories } & \mathrm{Cr} & &1000 \
\text { Deferred tax asset } & \mathrm{Dr} & 300 & \
\text { Income tax expense } & \mathrm{Cr} & & 300
\end{array}$ 
C)  $$\begin{array} { l l r r } 
\text { Sales reverue } & \mathrm { Dr } & 30000 \
\text { Cost of sales } & \mathrm { Cr } & & 27000 \
\text { Irventories } & \mathrm { Cr } & & 3000 \
\text { Deferred tax asset } & \mathrm { Dr } & 900 & \
\text { Income tax expense } & \mathrm { Cr } & & 900
\end{array}$$ 
D)  $$\begin{array} { c l c c } 
\text { Sales reverue } & \mathrm { Dr } & 10000 \
\text { Cost of sales } & \mathrm { Cr } & & 9000 \
\text { Irventories } & \mathrm { Cr } & & 1000 \
\text { Deferred tax asset } & \mathrm { Dr } & 300 & \
\text { Income tax expense } & \mathrm { Cr } & & 300
\end{array}$$

Question 6

On 1 January 2021, Gemma Ltd sells inventories to its subsidiary, Tess Ltd, for $24 000. The inventories cost Gemma Ltd $20 000 earlier in the current year. Tess Ltd intends to use the item as plant with a useful life of 10 years. The estimated salvage value of the plant is zero and the straight-line method of depreciation will be applied. The tax rate is 30%. The worksheet entry for the year ended 30 June 2021 would include the following adjustment:

Accepted Answer

A)  DR Plant $4 000. 
B)  CR Plant $4 000. 
C)  DR Inventories $4 000. 
D)  CR Inventories $4 000. 
A)  DR Plant $4 000. 
B)  CR Plant $4 000. 
C)  DR Inventories $4 000. 
D)  CR Inventories $4 000.

Question 7

During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $6 000. The goods had originally cost the subsidiary $14 000. At the end of the year all the inventories were still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item:

Accepted Answer

A)  CR Cost of sales $14 000. 
B)  CR Cost of sales $20 000. 
C)  CR Cost of sales $6 000. 
D)  CR Cost of sales $8 000. 
A)  CR Cost of sales $14 000. 
B)  CR Cost of sales $20 000. 
C)  CR Cost of sales $6 000. 
D)  CR Cost of sales $8 000.

Question 8

Sherrin Ltd purchased goods from its subsidiary for $24 000. The goods cost the subsidiary $18 000. The company rate of tax is 30%. Which of the following consolidation adjustment entries is correct?

Accepted Answer

A)  DR Income tax expense $1 800 CR Deferred tax liability $1 800. 
B)  DR Income tax expense $1 800 CR Deferred tax asset $1 800. 
C)  DR Deferred tax asset $1 800 CR Income tax expense $1 800. 
D)  DR Deferred tax liability $1 800 CR Income tax expense $1 800. 
A)  DR Income tax expense $1 800 CR Deferred tax liability $1 800. 
B)  DR Income tax expense $1 800 CR Deferred tax asset $1 800. 
C)  DR Deferred tax asset $1 800 CR Income tax expense $1 800. 
D)  DR Deferred tax liability $1 800 CR Income tax expense $1 800.

Question 9

During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $6 000. The goods had originally cost the subsidiary $30 000. All the inventories were still on hand at the end of the year. The consolidation adjustment entry would include the following line item:

Accepted Answer

A)  CR Inventories $30 000. 
B)  CR Inventories $24 000. 
C)  CR Inventories $18 000. 
D)  CR Inventories $6 000. 
A)  CR Inventories $30 000. 
B)  CR Inventories $24 000. 
C)  CR Inventories $18 000. 
D)  CR Inventories $6 000.

Question 10

The consolidation adjustments in relation to intragroup borrowings:

Accepted Answer

A)  do not require tax-effect entry. 
B)  increase the group's net assets. 
C)  increase the group's interest revenue. 
D)  decrease the group's income tax expense. 
A)  do not require tax-effect entry. 
B)  increase the group's net assets. 
C)  increase the group's interest revenue. 
D)  decrease the group's income tax expense.

Question 11

Kateri Ltd sold an item of plant to its subsidiary, Patrick Ltd, on 1 January 2022 for $50 000. The asset had cost A Ltd $60 000 and had a useful life of 6 years when acquired on 1 January 2020 from an external party. The adjustment necessary on consolidation in relation to the transfer of plant as at 30 June 2023 will result in:

Accepted Answer

A)  a decrease in retained earnings and a decrease in current year profit. 
B)  an increase in retained earnings and a decrease in current year profit. 
C)  a decrease in retained earnings and an increase in current year profit. 
D)  an increase in retained earnings and an increase in current year profit. 
A)  a decrease in retained earnings and a decrease in current year profit. 
B)  an increase in retained earnings and a decrease in current year profit. 
C)  a decrease in retained earnings and an increase in current year profit. 
D)  an increase in retained earnings and an increase in current year profit.

Question 12

The tax effect of eliminating the unrealised profit from an intragroup sale of inventories and adjusting the value of the inventories on hand is recognised as:

Accepted Answer

A)  an increase in income tax expense. 
B)  an increase in deferred tax liability. 
C)  a decrease in deferred tax liability. 
D)  an increase in deferred tax asset. 
A)  an increase in income tax expense. 
B)  an increase in deferred tax liability. 
C)  a decrease in deferred tax liability. 
D)  an increase in deferred tax asset.

Question 13

AASB 10 Consolidated Financial Statements, requires that the effect of intragroup transactions be:

Accepted Answer

A)  eliminated in full on consolidation. 
B)  adjusted for in full in the books of both the parent and subsidiary. 
C)  eliminated on consolidation to the extent of the parent's interest in the subsidiary. 
D)  adjusted for in the books of the parent and subsidiary to the extent of the parent's interest in the subsidiary. 
A)  eliminated in full on consolidation. 
B)  adjusted for in full in the books of both the parent and subsidiary. 
C)  eliminated on consolidation to the extent of the parent's interest in the subsidiary. 
D)  adjusted for in the books of the parent and subsidiary to the extent of the parent's interest in the subsidiary.

Question 14

A subsidiary sold inventories to its parent entity in the year ended 30 June 2022 at a profit of $8 000. At 30 June 2022 the parent had not sold the inventories. The company tax rate is 30%. The consolidation worksheet prepared at 30 June 2022 will contain the following adjustment entry for inventories:

Accepted Answer

A)  CR Inventories $2 400. 
B)  DR Inventories $2 400. 
C)  DR Inventories $8 000. 
D)  CR Inventories $8 000. 
A)  CR Inventories $2 400. 
B)  DR Inventories $2 400. 
C)  DR Inventories $8 000. 
D)  CR Inventories $8 000.

Question 15

When an entity sells a non-depreciable non-current asset during the current period at a profit to another entity within the same group the following adjustment is necessary on consolidation at the end of the period:

Accepted Answer

A)  DR Asset CR Cash 
B)  DR Gain on sale CR Asset 
C)  DR Cash CR Asset 
D)  DR Asset CR Gain on sale. 
A)  DR Asset CR Cash 
B)  DR Gain on sale CR Asset 
C)  DR Cash CR Asset 
D)  DR Asset CR Gain on sale.

Question 16

During the year ended 30 June 2022, Jasmine Ltd rents a warehouse from its subsidiary, Rose Ltd, for $20 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2022 is:

Accepted Answer

A)  $$\begin{array} { c l c c } 
\text { Rent reverule } & \mathrm { Dr } & 20000 & \
\text { Rent expense } & \mathrm { Cr } & & 20000 \
\text { Income tax expense } & \mathrm { Dr } & 6000 & \
\text { Deferted tax liability } & \mathrm { Cr } & & 6000
\end{array}$$ 
B)  $$\begin{array} { c l c c } 
\text { Rent reverule } & \mathrm { Dr } & 20000 & \
\text { Rent expense } & \mathrm { Cr } & & 20000 \
\text { Deferred tax asset } & \mathrm { Dr } & 6000 & \
\text { Income tax expense } & \mathrm { Cr } & & 6000
\end{array}$$ 
C)  Rent Teverume$\quad$Dr$\quad$$\quad$20000
Rent experse$\quad$$\quad$Cr$\quad$$\quad$20000 
D)  Rent expense$\quad$Dr$\quad$$\quad$20000
Rent revenue$\quad$$\quad$Cr$\quad$$\quad$20000 
A)  $$\begin{array} { c l c c } 
\text { Rent reverule } & \mathrm { Dr } & 20000 & \
\text { Rent expense } & \mathrm { Cr } & & 20000 \
\text { Income tax expense } & \mathrm { Dr } & 6000 & \
\text { Deferted tax liability } & \mathrm { Cr } & & 6000
\end{array}$$ 
B)  $$\begin{array} { c l c c } 
\text { Rent reverule } & \mathrm { Dr } & 20000 & \
\text { Rent expense } & \mathrm { Cr } & & 20000 \
\text { Deferred tax asset } & \mathrm { Dr } & 6000 & \
\text { Income tax expense } & \mathrm { Cr } & & 6000
\end{array}$$ 
C)  Rent Teverume$\quad$Dr$\quad$$\quad$20000
Rent experse$\quad$$\quad$Cr$\quad$$\quad$20000 
D)  Rent expense$\quad$Dr$\quad$$\quad$20000
Rent revenue$\quad$$\quad$Cr$\quad$$\quad$20000

Question 17

Purple Ltd sold an item of plant to its subsidiary, Rain Ltd, on 1 January 2022 for $50 000. The asset had cost Purple Ltd $60 000 and had an useful life of 6 years when acquired on 1 January 2020 from an external party. The adjustment necessary on consolidation in relation to the transfer of plant as at 30 June 2022 will result in:

Accepted Answer

A)  an increase in current year profit. 
B)  a decrease in current year profit. 
C)  an increase in current year profit and non-current assets. 
D)  a decrease in current year profit and non-current assets. 
A)  an increase in current year profit. 
B)  a decrease in current year profit. 
C)  an increase in current year profit and non-current assets. 
D)  a decrease in current year profit and non-current assets.

Question 18

The profit on an intragroup business transaction is 'realised' when:

Accepted Answer

A)  the parent sells to the subsidiary. 
B)  the subsidiary sells to the parent. 
C)  there is involvement with an external party. 
D)  only entities within the group are parties to the transaction. 
A)  the parent sells to the subsidiary. 
B)  the subsidiary sells to the parent. 
C)  there is involvement with an external party. 
D)  only entities within the group are parties to the transaction.

Question 19

Key questions to consider when determining the appropriate consolidation adjustment entries include the following except for:

Accepted Answer

A)  What is the tax effect of the adjustments made? 
B)  What has been recorded by the legal entities? 
C)  Is this a prior period or a current period transaction? 
D)  Does the transaction involve the parent entity selling assets to the subsidiary, or the subsidiary selling assets to the parent entity? 
A)  What is the tax effect of the adjustments made? 
B)  What has been recorded by the legal entities? 
C)  Is this a prior period or a current period transaction? 
D)  Does the transaction involve the parent entity selling assets to the subsidiary, or the subsidiary selling assets to the parent entity?

Question 20

Matthew Limited, a subsidiary entity, sold a non-current asset at a profit to its parent entity during the current period. The adjustment necessary on consolidation to reflect the tax effect of this transaction will result in an:

Accepted Answer

A)  increase in retained earnings. 
B)  decrease in retained earnings. 
C)  increase in deferred tax assets. 
D)  decrease in deferred tax liabilities. 
A)  increase in retained earnings. 
B)  decrease in retained earnings. 
C)  increase in deferred tax assets. 
D)  decrease in deferred tax liabilities.

Exam 28: Consolidation: Intragroup Transactions

Which of the following statements is incorrect?

Which of the following statements is incorrect?

Margaret Company made an advance of $45 000 to its subsidiary, Jack Limited. Margaret Company charges interest of $15 000 on this advance. The consolidation adjustment to eliminate the advance is:

Paul Limited provided an advance of $150 000 to its subsidiary Caitlin Limited. On consolidation, the following adjustment is needed in relation to this intragroup advance:

Sherrin Ltd purchased goods from its subsidiary for $24 000. The goods cost the subsidiary $18 000. The company rate of tax is 30%. Which of the following consolidation adjustment entries is correct?

During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $6 000. The goods had originally cost the subsidiary $30 000. All the inventories were still on hand at the end of the year. The consolidation adjustment entry would include the following line item:

The consolidation adjustments in relation to intragroup borrowings:

The tax effect of eliminating the unrealised profit from an intragroup sale of inventories and adjusting the value of the inventories on hand is recognised as:

AASB 10 Consolidated Financial Statements, requires that the effect of intragroup transactions be:

When an entity sells a non-depreciable non-current asset during the current period at a profit to another entity within the same group the following adjustment is necessary on consolidation at the end of the period:

During the year ended 30 June 2022, Jasmine Ltd rents a warehouse from its subsidiary, Rose Ltd, for $20 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2022 is:

The profit on an intragroup business transaction is 'realised' when:

Key questions to consider when determining the appropriate consolidation adjustment entries include the following except for:

Matthew Limited, a subsidiary entity, sold a non-current asset at a profit to its parent entity during the current period. The adjustment necessary on consolidation to reflect the tax effect of this transaction will result in an:

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Recording

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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