Exam 29: Further Consolidation Issues I: Accounting for Intragroup Transact

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 per cent.At the end of the period,100 units are on hand.

A non-current asset was sold by Subsidiary Limited to Parent Limited during the 2006-07 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. 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?

The fact that consolidation worksheets start "afresh" each year means that the tax entry for eliminating unrealised profit in opening inventory requires a "Dr" to Deferred Tax Assets,rather than Income Tax Expense:

A non-current asset was sold by Subsidiary Limited to Parent Limited on 30 June 2007.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. Assuming there is another ten years of useful life remaining for the asset,what are the journal entries at 30 June 2009 to adjust for depreciation?

AASB 127 "Consolidated and Separate Financial Statements" prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation.This requirement is consistent with the economic entity concept of consolidation.

Intragroup profits are eliminated in consolidation to exclude intragroup transactions in the parent entity's financial statements.

Woody Ltd sold inventory items to its subsidiary Buzz Lightyear Ltd and had the following intercompany transactions: Cost of $300 000 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 $100 000 for $75 000 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

What is the amount of unrealised profit that needs to be eliminated at the end of the period,in the following situation,where Morecombe Limited is the parent of Wise Limited? (Ignore the tax effect) Morecombe purchases 500 units of inventory for $20 each.Morecombe sells this entire inventory to Wise at a mark up of 25 per cent.Wise then sells half of the inventory to an external party.Half of the remaining amount (after the external sale)is sold back to Morecombe for $2,500.

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

AASB 127 "Consolidated and Separate 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.

French Ltd purchased 100 per cent of the issued capital of Pastry Ltd for a cash consideration of $2.1 million on 1 July 2005.At that time the fair value of the net assets of Pastry Ltd were represented by: Goodwill had been determined to have been impaired by $ 5000 during the period.During the period ended 30 June 2006 Pastry Ltd sold inventory that cost $190,000 for $300,000 to French Ltd.Sixty percent 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 per cent. What consolidation journal entries are required for the period ending 30 June 2006?

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?

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?

French Ltd owns 100 per cent of the issued capital of Pastry Ltd.During the period ended 30 June 2006 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 that year.Both companies use a perpetual inventory system.The taxation rate is 30 per cent. What consolidation journal entries are required in relation to the inter-company transaction for the period ending 30 June 2007?

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:

Zeus Ltd owns 100 per cent of the issued capital of Ares Ltd.On 1 July 2005 Zeus Ltd purchased an item of equipment from Ares Ltd for $800,000.Ares had owned the equipment for 2 years.It originally cost $890,000 and the accumulated depreciation was $178,000 at the time of sale.The equipment has been depreciated over this time,but not written down or revalued.The remaining useful life of the equipment at 1 July 2005 is estimated to be 8 years.Zeus Ltd expects the benefits to be obtained from the equipment to be evenly received over its useful life.The tax rate is 30 per cent. What are the consolidation journal entries required for this inter-company transaction for the period ended 30 June 2006?

Alice Ltd sold inventory items to its subsidiary Mad Hatter Ltd and had the following intercompany transactions: Cost of $100 000 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 $75 000 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?

Meat Ltd purchased 100 per cent of the issued capital of Pie Ltd for a cash consideration of $1.7 million on 1 July 2004.At that time the fair value of the net assets of Pie Ltd were represented by: Goodwill had been determined to have been impaired by $20,000 during the period.During the period ended 30 June 2005 Pie Ltd sold inventory that cost $450,000 for $620,000 to Meat Ltd.Twenty percent 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 per cent.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 2005?

Company A owns 51 per cent of the issued capital of Company B and Company A owns 60 per cent 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:

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