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) \[\begin{array} { | l | r | r | } \hline 30 \text { June 2016 } & & \\ \hline \text { Dr Accumulated depreciation } & 40000 & \\ \hline \text { Cr Depreciation } & & 20000 \\ \hline \text { Cr Opening retained earnings (1 July 2016) } & & 20000 \\ \hline & & \\ \hline \text { Dr Opening retained earnings (1 July 2016) } & 6000 & \\ \hline \text { Dr Income tax expense } & 6000 & \\ \hline \text { Cr Deferred tax asset } & & 12000 \\ \hline \end{array}\] 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) \[\begin{array} { | l | r | r | } \hline 30 \text { June 2016 } & & \\ \hline \text { Dr Accumulated depreciation } & 40000 & \\ \hline \text { Cr Depreciation } & & 20000 \\ \hline \text { Cr Opening retained earnings (1 July 2016) } & & 20000 \\ \hline & & \\ \hline \text { Dr Opening retained earnings (1 July 2016) } & 6000 & \\ \hline \text { Dr Income tax expense } & 6000 & \\ \hline \text { Cr Deferred tax asset } & & 12000 \\ \hline \end{array}\]

Forest Ltd purchased all the issued capital of Shrub Ltd on 1 July 2013 for cash consideration of $1 million.The fair value of Shrub Ltd's net assets at that date was $1 million made up of: \[\begin{array} { | l | r | } \hline \text { Share capital } & \$ 750000 \\ \hline \text { Retained earnings } & \underline{250000} \\ \hline \text { Total equity } & \underline{\$1000000} \\ \hline \end{array}\] During the period ended 30 June 2014,Shrub Ltd declare a dividend of $100 000 out of pre-acquisition earnings.What consolidation journal entries would be required to prepare group accounts for the period?

A) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend declared } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline \end{array}\] B) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend declared } & & 100000 \\ \hline \end{array}\] C) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\ \hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 100000 \\ \hline \end{array}\] D) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\ \hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend payable } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline \end{array}\] A) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend declared } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline \end{array}\] B) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend receivable } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend declared } & & 100000 \\ \hline \end{array}\] C) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\ \hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend income } & & 100000 \\ \hline \end{array}\] D) \[\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\ \hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\ \hline \mathrm { Cr } & \text { Dividend payable } & & 100000 \\ \hline & & & \\ \hline \mathrm { Dr } & \text { Share capital } & 750000 & \\ \hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\ \hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\ \hline \end{array}\]

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) \[\begin{array} { | l | r | r | } \hline \text { 1 July } 2014 & & \\ \hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\ \hline \text { Cr Cost of goods sold } & & 50000 \\ \hline & & \\ \hline \text { Dr Income tax expense } & 15000 & \\ \hline \text { Cr Opening retained earnings (1 July 2014) } & & 15000 \\ \hline \end{array}\] 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) \[\begin{array} { | l | r | r | } \hline \text { 1 July } 2014 & & \\ \hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\ \hline \text { Cr Cost of goods sold } & & 50000 \\ \hline & & \\ \hline \text { Dr Income tax expense } & 15000 & \\ \hline \text { Cr Opening retained earnings (1 July 2014) } & & 15000 \\ \hline \end{array}\]

Exam 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

(Essay)

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Question 41

Intragroup transactions that are to be eliminated in the consolidated accounts include:

(Multiple Choice)

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Question 42

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?

(Multiple Choice)

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Question 43

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. 30 June 2014 Dr Profit on sale of asset 200000 Dr Asset 300000 Cr Accumulated depreciation 500000 Dr Deferred tax asset 60000 Cr Income tax expense 60000 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?

(Multiple Choice)

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Question 44

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's 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 Company B's own financial statements?

(Multiple Choice)

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Question 45

Forest Ltd purchased all the issued capital of Shrub Ltd on 1 July 2013 for cash consideration of $1 million.The fair value of Shrub Ltd's net assets at that date was $1 million made up of: Share capital \ 750000 Retained earnings Total equity During the period ended 30 June 2014,Shrub Ltd declare a dividend of $100 000 out of pre-acquisition earnings.What consolidation journal entries would be required to prepare group accounts for the period?

(Multiple Choice)

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Question 46

In the absence of an election to be a 'tax consolidated group',the Australian Tax Office assesses income earned by the individual legal entities in an economic group and does not take into consideration consolidation adjustments required for group accounts.

(True/False)

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Question 47

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

(Essay)

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Question 48

The treatment of dividends,paid by a subsidiary,that are identified as paid out of pre-acquisition profits in the period they are paid is to:

(Multiple Choice)

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Question 49

French Ltd purchased 100% of the issued capital of Pastry Ltd for a cash consideration of $2.1 million on 1 July 2015.At that time the fair value of the net assets of Pastry Ltd were represented by: Share capital \ 1700000 Retained earnings 300000 \ 2000000 Goodwill had been determined to have been impaired by $5000 during the period.During the period ended 30 June 2016 Pastry Ltd sold inventory that cost $190 000 for $300 000 to French Ltd.Sixty per cent of this inventory remains on hand in French Ltd at the end of the year.Both companies use a perpetual inventory system.The taxation rate is 30%. What consolidation journal entries are required for the period ending 30 June 2016?

(Multiple Choice)

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Question 50

Intragroup profits are eliminated in consolidation to reduce consolidated profits.

(True/False)

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Question 51

If we simply aggregate the sales of the parent and subsidiary companies,without adjustment,when there have been intragroup sales,total income would be overstated.

(True/False)

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Question 52

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?

(Multiple Choice)

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Question 53

If a subsidiary makes a dividend payment out of pre-acquisition earnings,the parent entity should consider whether its investment in the subsidiary is impaired.

(True/False)

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Question 54

The journal entries to eliminate unrealised profit in closing inventory at 30 June 2014 were as follows: 30 June 2014 Dr Cost of goods sold 50000 Cr Inventory 50000 Dr Deferred tax asset 15000 Cr Income tax expense 15000 What are the journal entries to eliminate the unrealised profits in opening inventory the following period?

(Multiple Choice)

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Question 55

Large Company owns 80% of the issued capital of Smaller Company and Large Company owns 60% of the issued capital of Medium Company.The three companies form an economic entity for the purposes of consolidated accounts.During the period Smaller Company sold inventory to Medium for $400 000.Medium sold the same inventory to Large for $560 000 and Large sold it to an entity external to the group for $760 000.What are the sales revenue reported in the consolidated statements for this item?

(Multiple Choice)

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Question 56

Which of the following statements describes the reasons why tax adjustments may be required when eliminating the unrealised profit from intragroup sales of inventory?

(Multiple Choice)

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Question 57

Intragroup sales of non-current assets results in the need to eliminate the effect of any profit or loss on sale in the period of the sale and,in the rest of the periods of the asset's life,any tax effects of the profit or loss,the depreciation and accumulated depreciation will have to be adjusted for the life of the asset,along with the tax effects of the adjustment to depreciation.

(True/False)

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Question 58

Company A owns 51% of the issued capital of Company B and Company A owns 60% of the issued capital of Company C. Company A controls both B and C. If Company A sells inventory for $500 000 to Company C and Company C sells it to Company B for $600 000 and Company B sells it to an entity external to the group for $700 000, the amount of sales revenue to be recorded for that inventory for the group of companies is $1 560 000.

(True/False)

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Question 59

Transactions between entities that form an economic group should be eliminated in proportion to the level of control between the parent entity and the subsidiary entity.

(True/False)

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Question 60

Showing 41 - 60 of 60

Exam 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

Intragroup transactions that are to be eliminated in the consolidated accounts include:

In the absence of an election to be a 'tax consolidated group',the Australian Tax Office assesses income earned by the individual legal entities in an economic group and does not take into consideration consolidation adjustments required for group accounts.

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

The treatment of dividends,paid by a subsidiary,that are identified as paid out of pre-acquisition profits in the period they are paid is to:

Intragroup profits are eliminated in consolidation to reduce consolidated profits.

If we simply aggregate the sales of the parent and subsidiary companies,without adjustment,when there have been intragroup sales,total income would be overstated.

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?

If a subsidiary makes a dividend payment out of pre-acquisition earnings,the parent entity should consider whether its investment in the subsidiary is impaired.

Which of the following statements describes the reasons why tax adjustments may be required when eliminating the unrealised profit from intragroup sales of inventory?

Transactions between entities that form an economic group should be eliminated in proportion to the level of control between the parent entity and the subsidiary entity.

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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