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 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

Radio Ltd acquired all the issued capital of Wave Ltd on 1 July 2014 for cash consideration of $2 million.The fair value of the net assets of Wave Ltd at that date was $1.8 million as follows: \[\begin{array} { | l | r | } \hline \text { Share capital } & \$ 1000000 \\ \hline \text { Retained earnings } & \underline{800000} \\ \hline \text { Total equity } & \underline{\$ 1800000} \\ \hline \end{array}\] During the period ending 30 June 2015,Wave Ltd declare a dividend of $300 000 that is identified as being paid out of pre-acquisition profits.Goodwill had been determined to have impaired by $20 000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2015?

A) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\ \hline \mathrm { Dr } & \text { Goodwill } & 500000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 2000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Impairment loss } & 250000 & \\ \hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 250000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline \end{array}\] B) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 800000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1800000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 20000 & \\ \hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 20000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\ \hline \end{array}\] C) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1500000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Impairment loss } & 20000 & \\ \hline \mathrm { Cr } & \text { Retained earnings } & & 20000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\ \hline \end{array}\] D) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 800000 & \\ \hline \mathrm { Dr } & \text { Goodwill } & 200000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 2000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Impairment loss -goodwill } & 20000 & \\ \hline \mathrm { Cr } & \text { Accumulated impairment loss-goodwill } & & 20000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\ \hline \end{array}\] A) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\ \hline \mathrm { Dr } & \text { Goodwill } & 500000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 2000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Impairment loss } & 250000 & \\ \hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 250000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline \end{array}\] B) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 800000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1800000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 20000 & \\ \hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 20000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\ \hline \end{array}\] C) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1500000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Impairment loss } & 20000 & \\ \hline \mathrm { Cr } & \text { Retained earnings } & & 20000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\ \hline \end{array}\] D) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 1000000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 800000 & \\ \hline \mathrm { Dr } & \text { Goodwill } & 200000 & \\ \hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 2000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Impairment loss -goodwill } & 20000 & \\ \hline \mathrm { Cr } & \text { Accumulated impairment loss-goodwill } & & 20000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\ \hline \end{array}\]

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 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

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

What is the amount of unrealised profit that needs to be eliminated at the end of the period,in the following situation,where Barker Limited is the parent of Corbett Limited? (Ignore the tax effect.) Barker purchases 500 units of inventory for $20 each.Barker sells this entire inventory to Corbett at a mark-up of 50%.At the end of the period,100 units are on hand.

(Multiple Choice)

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Question 21

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?

(Multiple Choice)

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Question 22

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. 30 June 2014 Dr Profit on sale of asset 400000 Dr Asset 600000 Cr Accumulated depreciation 1000000 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?

(Multiple Choice)

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Question 23

Hammer Ltd acquired all the issued capital of Nail Ltd on 1 July 2015 for cash consideration of $1.5 million.The fair value of the net assets of Nail Ltd at that date was $1.2 million as follows: Share capital \ 1000000 Retained earnings Total equity During the period ended 30 June 2016,Nail Ltd declared a dividend of $200 000 that is identified as being paid out of pre-acquisition profits and a further $100 000 is declared at the end of the period that is out of post-acquisition profits.Goodwill had been determined to have been impaired by $15 000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2016?

(Multiple Choice)

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Question 24

Dividends paid between entities in the group should be:

(Multiple Choice)

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Question 25

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.

(Essay)

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Question 26

AASB 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation.This requirement is consistent with the parent entity concept of consolidation.

(True/False)

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Question 27

Monster Co Ltd owns 100% of the issued shares of Mini Co Ltd.Mini Co Ltd declared a dividend of $100 000 for the period ended 30 June 2014.Monster Co Ltd accrues dividends when they are declared by its subsidiaries.What elimination entry would be required to prepare the consolidated financial statements for the group for the period ended 30 June 2015?

(Multiple Choice)

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Question 28

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

(Multiple Choice)

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Question 29

Radio Ltd acquired all the issued capital of Wave Ltd on 1 July 2014 for cash consideration of $2 million.The fair value of the net assets of Wave Ltd at that date was $1.8 million as follows: Share capital \ 1000000 Retained earnings Total equity During the period ending 30 June 2015,Wave Ltd declare a dividend of $300 000 that is identified as being paid out of pre-acquisition profits.Goodwill had been determined to have impaired by $20 000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2015?

(Multiple Choice)

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Question 30

AASB 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation even where the parent entity holds only a fraction of the issued equity.

(True/False)

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Question 31

Meat Ltd purchased 100% of the issued capital of Pie Ltd for a cash consideration of $1.7 million on 1 July 2014.At that time the fair value of the net assets of Pie Ltd were represented by: Share capital \ 1000000 Retained earnings 500000 \ 1500000 Goodwill had been determined to have been impaired by $20 000 during the period.During the period ended 30 June 2015,Pie Ltd sold inventory that cost $450 000 for $620 000 to Meat Ltd.Twenty per cent of this inventory remains on hand in Meat Ltd at the end of the year.Both companies use a perpetual inventory system.The taxation rate is 30%.At the end of the period Pie Ltd declared a dividend of $45 000 that has not yet been paid. What consolidation journal entries are required for the period ending 30 June 2015?

(Multiple Choice)

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Question 32

Only dividends paid externally should be shown in the consolidated financial statements.

(True/False)

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Question 33

The level of equity ownership is not a factor in deciding what proportion of a transaction between entities in a group should be eliminated.

(True/False)

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Question 34

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. 30 June 2014 Dr Profit on sale of asset 200000 Dr Asset 300000 Cr Accumulated depreciation 500000 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?

(Multiple Choice)

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Question 35

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.

(Essay)

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Question 36

Examples of intragroup transactions include:

(Multiple Choice)

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Question 37

Parent Ltd sells inventories to Child Ltd amounting to $200 000 during the financial year.The inventories are no longer in the hands of Child Ltd at year-end.Parent Ltd is no longer required to eliminate these intragroup transactions because these transactions have been realised by sale to external parties.

(True/False)

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Question 38

Companies A,B and C are all part of the one economic entity,but are all separate legal entities required to prepare their own financial statements.Company A sold Company B inventory that cost $56 000 for $78 000.At the end of the same period Company B has three-quarters of that inventory still on hand and the rest has been sold to an entity outside the economic group.At what amount should the inventory remaining in Company B be recorded in the consolidated statements?

(Multiple Choice)

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Question 39

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?

(Multiple Choice)

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Question 40

Showing 21 - 40 of 60

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

Dividends paid between entities in the group should be:

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.

AASB 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation.This requirement is consistent with the parent entity concept of consolidation.

AASB 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation even where the parent entity holds only a fraction of the issued equity.

Only dividends paid externally should be shown in the consolidated financial statements.

The level of equity ownership is not a factor in deciding what proportion of a transaction between entities in a group should be eliminated.

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.

Examples of intragroup transactions include:

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?

An Overview of the Australian External Reporting Environment

The Conceptual Framework of Accounting and Its Relevance to Financial Reporting

Theories of Accounting

An Overview of Accounting for Assets

Depreciation of Property, plant and Equipment

Revaluations and Impairment Testing of Non-Current Assets

Inventory

Accounting for Intangibles

Accounting for Heritage Assets and Biological Assets

An Overview of Accounting for Liabilities

Accounting for Leases

Accounting for Employee Benefits

Share Capital and Reserves

Accounting for Financial Instruments

Revenue Recognition Issues

The Statement of Comprehensive Income and Statement of Changes in Equity

Accounting for Share-Based Payments

Accounting for Income Taxes

The Statement of Cash Flows

Accounting for the Extractive Industries

Accounting for General Insurance Contracts

Accounting for Superannuation Plans

Events Occurring After the End of the Reporting Period

Segment Reporting

Related Party Disclosures

Earnings Per Share

Accounting for Group Structures

Further Consolidation Issues II: Accounting for Non-Controlling Interests

Further Consolidation Issues IV: Accounting for Changes in the Degree of Ownership of a Subsidiary

Accounting for Equity Investments,including Investments in Associates and Joint Arrangements

Accounting for Foreign Currency Transactions

Translating the Financial Statements of Foreign Operations

Accounting for Corporate Social Responsibility

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