Question 1

Unrealised gains on the intragroup sale of depreciable assets are realised via depreciation charges over the remaining useful life of the asset.

Accepted Answer

A) True 
 B)False

Question 2

P Ltd sells inventory to its subsidiary S Ltd on the following basis: cost to P $60 000,sale price to S $80 000.All inventory is held by S at the end of the financial year (assume a tax rate of 30%).The periodic method is used to account for inventory.Therefore,which of the following consolidation entries are required?

Accepted Answer

A) $\begin{array} { l l } 
\text { Dr. Sales } & \$ 80,000 \
\text { Cr. Cost of Sales } & \$ 80,000
\end{array}$ 
B) $\begin{array} { l c } 
\text { Dr. Sales } & \$ 80,000 \
\text { Cr. Cost of Sales } & \$ 80,000 \
\text { Dr. Closing Inventory } & \$ 20,000 \
\text { Cr. Inventory } & \$ 20,000
\end{array}$ 
C) As for $B$ plus
Dr. Deferred Tax Asset $\$ 6000$
Cr. Income Tax expense $\$ 6000$ 
D)  None of the above 
A) $\begin{array} { l l } 
\text { Dr. Sales } & \$ 80,000 \
\text { Cr. Cost of Sales } & \$ 80,000
\end{array}$ 
B) $\begin{array} { l c } 
\text { Dr. Sales } & \$ 80,000 \
\text { Cr. Cost of Sales } & \$ 80,000 \
\text { Dr. Closing Inventory } & \$ 20,000 \
\text { Cr. Inventory } & \$ 20,000
\end{array}$ 
C) As for $B$ plus
Dr. Deferred Tax Asset $\$ 6000$
Cr. Income Tax expense $\$ 6000$ 
D)  None of the above

Question 3

Unrealised profits on an intragroup sale of inventories arise if:

Accepted Answer

A)  the sale is an upstream transaction. 
B)  the sale is a downstream transaction. 
C)  the inventories are held within the group at date of consolidation. 
D)  none of the above. 
A)  the sale is an upstream transaction. 
B)  the sale is a downstream transaction. 
C)  the inventories are held within the group at date of consolidation. 
D)  none of the above.

Question 4

The useful life of a depreciable asset cannot change subsequent to an intragroup sale of the asset.

Accepted Answer

A) True 
 B)False

Question 5

Assuming the same facts as for Question 12 but that two years later S sold the land outside the group for $1 200 000,the consolidation journal entry required would be (ignoring tax effects):

Accepted Answer

A) $\begin{array} { l r } 
\text { Dr. Opening Retained Earnings } & \$ 900,000 \
\text { Cr. Gain on Sale } & \$ 900,000
\end{array}$ 
B) $\begin{array} { l r } 
\text { Dr. Opening Retained Earnings } & \$ 1,100,000 \
\text { Cr. Gain on Sale } & \$ 1,100,000
\end{array}$ 
C) $\begin{array} { l r } 
\text { Dr. Opening Retained Earnings } & \$ 200,000 \
\text { Cr. Gain on Sale } & \$ 200,000
\end{array}$ 
D) no entry required 
A) $\begin{array} { l r } 
\text { Dr. Opening Retained Earnings } & \$ 900,000 \
\text { Cr. Gain on Sale } & \$ 900,000
\end{array}$ 
B) $\begin{array} { l r } 
\text { Dr. Opening Retained Earnings } & \$ 1,100,000 \
\text { Cr. Gain on Sale } & \$ 1,100,000
\end{array}$ 
C) $\begin{array} { l r } 
\text { Dr. Opening Retained Earnings } & \$ 200,000 \
\text { Cr. Gain on Sale } & \$ 200,000
\end{array}$ 
D) no entry required

Question 6

Explain why it is necessary to adjust unrealised profit in opening inventory on consolidation.

Accepted Answer

Adjustment of unrealised profit in openi

Question 7

Where service fees are accrued by group members,there is no tax effect on consolidation.

Accepted Answer

A) True 
 B)False

Question 8

Using the same facts as Question 14 but assuming that S will depreciate the asset over its remaining estimated useful life of eight years,what is the depreciation expense adjustment required on consolidation one year after the intragroup sale?

Accepted Answer

A)  Cr. $400 
B)  Dr. $400 
C)  Cr. $2100 
D)  Cr. $2500 
A)  Cr. $400 
B)  Dr. $400 
C)  Cr. $2100 
D)  Cr. $2500

Question 9

A parent company owns 80% of the issued capital of its subsidiary.On consolidation,a sale of inventories between parent and subsidiary will be eliminated as follows:

Accepted Answer

A)  20% of sale amount. 
B)  80% of sale amount. 
C)  100% of sale amount. 
D)  not eliminated. 
A)  20% of sale amount. 
B)  80% of sale amount. 
C)  100% of sale amount. 
D)  not eliminated.

Question 10

Deferred tax assets and liabilities arising from accrual of intragroup interest on loans should be offset as a consolidation adjustment.

Accepted Answer

A) True 
 B)False

Question 11

An impairment loss will be recognised in the group accounts when non-current assets are sold at a loss on an intragroup basis when value in use is:

Accepted Answer

A)  greater than carrying amount. 
B)  less than carrying amount. 
C)  greater than sale price. 
D)  less than sale price. 
A)  greater than carrying amount. 
B)  less than carrying amount. 
C)  greater than sale price. 
D)  less than sale price.

Question 12

Dividends paid by the parent company and all subsidiaries will be eliminated as consolidation adjustments.

Accepted Answer

A) True 
 B)False

Question 13

P Ltd lends $200 000 to its subsidiary S Ltd.At the end of the year,S Ltd has paid interest of $18 000 and owes a further $2000 (assume a tax rate of 30%).The required consolidation entry is:

Accepted Answer

A) $\begin{array} { l l } 
\text { Dr. Loan Payable } & \$ 200,000 \
\text { Cr. Loan Receivable } & \$ 200,000
\end{array}$ 
B) $\begin{array} { l l } 
\text { Dr. Loan Payable } & \$ 200,000 \
\text { Cr. Loan Receivable } & \$ 200,000 \
\text { Dr. Interest Revenue } & \$ 20,000 \
\text { Cr. Interest Payable } & \$ 20,000
\end{array}$ 
C) $\begin{array} { l c } 
\text { Dr. Loan Payable } & \$ 200,000 \
\text { Cr. Loan Receivable } & \$ 200,000 \
\text { Dr. Interest Revenue } & \$ 20,000 \
\text { Cr. Interest Expense } & \$ 20,000 \
\text { Dr. Accrued Interest Payable } \$ 2000 & \
\text { Cr. Accrued Interest Receivable } \$ 2000
\end{array}$ 
D) $\begin{array}{l}
\text { Entry } \mathrm { C } \text { plus: }\
\begin{array} { l l } 
\text { Dr. Deferred Tax Asset } & \$ 600 \
\text { Cr. Income Tax expense } & \$ 600 \
\text { Dr. Income Tax expense } & \$ 600 \
\text { Cr. Deferred Tax Liability } & \$ 600
\end{array}
\end{array}$ 
A) $\begin{array} { l l } 
\text { Dr. Loan Payable } & \$ 200,000 \
\text { Cr. Loan Receivable } & \$ 200,000
\end{array}$ 
B) $\begin{array} { l l } 
\text { Dr. Loan Payable } & \$ 200,000 \
\text { Cr. Loan Receivable } & \$ 200,000 \
\text { Dr. Interest Revenue } & \$ 20,000 \
\text { Cr. Interest Payable } & \$ 20,000
\end{array}$ 
C) $\begin{array} { l c } 
\text { Dr. Loan Payable } & \$ 200,000 \
\text { Cr. Loan Receivable } & \$ 200,000 \
\text { Dr. Interest Revenue } & \$ 20,000 \
\text { Cr. Interest Expense } & \$ 20,000 \
\text { Dr. Accrued Interest Payable } \$ 2000 & \
\text { Cr. Accrued Interest Receivable } \$ 2000
\end{array}$ 
D) $\begin{array}{l}
\text { Entry } \mathrm { C } \text { plus: }\
\begin{array} { l l } 
\text { Dr. Deferred Tax Asset } & \$ 600 \
\text { Cr. Income Tax expense } & \$ 600 \
\text { Dr. Income Tax expense } & \$ 600 \
\text { Cr. Deferred Tax Liability } & \$ 600
\end{array}
\end{array}$

Question 14

Which of the following accounts cannot be altered by a consolidation adjusting entry?

Accepted Answer

A)  Income tax expense 
B)  Income tax payable 
C)  Deferred tax asset 
D)  Deferred tax asset. 
A)  Income tax expense 
B)  Income tax payable 
C)  Deferred tax asset 
D)  Deferred tax asset.

Question 15

Using the same data as for Question 9,what would be the consolidation entry required for the next financial year (assuming S sold all the inventory during the next year)?

Accepted Answer

A)  $\begin{array} { l l } 
\text { Dr. Sales } & \$ 20,000 \
\text { Cr. Cost of Sales } & \$ 20,000
\end{array}$ 
B)  Dr. Opening Retained Earnings $\quad\$ 20,000$
Cr. Cost of Goods Sold $\quad\quad \$ 20,000$ 
C)  as for $B$ plus
Dr. Income Tax Expense $\$ 6000$
Cr. Retained Earnings $\quad \$ 6000$ 
D)  None of the above 
A)  $\begin{array} { l l } 
\text { Dr. Sales } & \$ 20,000 \
\text { Cr. Cost of Sales } & \$ 20,000
\end{array}$ 
B)  Dr. Opening Retained Earnings $\quad\$ 20,000$
Cr. Cost of Goods Sold $\quad\quad \$ 20,000$ 
C)  as for $B$ plus
Dr. Income Tax Expense $\$ 6000$
Cr. Retained Earnings $\quad \$ 6000$ 
D)  None of the above

Question 16

Where a parent entity sells inventories to a subsidiary,this is called an 'upstream' sale.

Accepted Answer

A) True 
 B)False

Question 17

Consolidation entries never adjust cash because intragroup transactions do not alter the group's cash position.

Accepted Answer

A) True 
 B)False

Question 18

For assets valued using the revaluation model consolidation,an adjustment will be required:

Accepted Answer

A)  when there is a revaluation increment. 
B)  when there is a revaluation decrement. 
C)  for both a revaluation increment and decrement. 
D)  no adjustment required. 
A)  when there is a revaluation increment. 
B)  when there is a revaluation decrement. 
C)  for both a revaluation increment and decrement. 
D)  no adjustment required.

Unrealised gains on the intragroup sale of depreciable assets are realised via depreciation charges over the remaining useful life of the asset.

Unrealised profits on an intragroup sale of inventories arise if:

The useful life of a depreciable asset cannot change subsequent to an intragroup sale of the asset.

Assuming the same facts as for Question 12 but that two years later S sold the land outside the group for $1 200 000,the consolidation journal entry required would be (ignoring tax effects):

Explain why it is necessary to adjust unrealised profit in opening inventory on consolidation.

Where service fees are accrued by group members,there is no tax effect on consolidation.

Using the same facts as Question 14 but assuming that S will depreciate the asset over its remaining estimated useful life of eight years,what is the depreciation expense adjustment required on consolidation one year after the intragroup sale?

A parent company owns 80% of the issued capital of its subsidiary.On consolidation,a sale of inventories between parent and subsidiary will be eliminated as follows:

Deferred tax assets and liabilities arising from accrual of intragroup interest on loans should be offset as a consolidation adjustment.

An impairment loss will be recognised in the group accounts when non-current assets are sold at a loss on an intragroup basis when value in use is:

Dividends paid by the parent company and all subsidiaries will be eliminated as consolidation adjustments.

P Ltd lends $200 000 to its subsidiary S Ltd.At the end of the year,S Ltd has paid interest of $18 000 and owes a further $2000 (assume a tax rate of 30%).The required consolidation entry is:

Which of the following accounts cannot be altered by a consolidation adjusting entry?

Using the same data as for Question 9,what would be the consolidation entry required for the next financial year (assuming S sold all the inventory during the next year)?

Where a parent entity sells inventories to a subsidiary,this is called an 'upstream' sale.

Consolidation entries never adjust cash because intragroup transactions do not alter the group's cash position.

For assets valued using the revaluation model consolidation,an adjustment will be required:

Text Objectives and Introduction to Consolidation

Principles of Consolidation

Fair Value Adjustments and Tax Effects

Non-Controlling Interest

Partly-Owned Subsidiaries: Indirect Non-Controlling Interest

Consolidated Cash Flow Statements

Accounting for Joint Arrangements

Accounting for Associates and Joint Ventures: the Equity Method

Translation and Consolidation of Foreign Currency Financial Statements

Segment Reporting by Diversified Entities

Filters

Exam 4: Intra-Group Transactions

Unrealised gains on the intragroup sale of depreciable assets are realised via depreciation charges over the remaining useful life of the asset.

Unrealised profits on an intragroup sale of inventories arise if:

The useful life of a depreciable asset cannot change subsequent to an intragroup sale of the asset.

Assuming the same facts as for Question 12 but that two years later S sold the land outside the group for $1 200 000,the consolidation journal entry required would be (ignoring tax effects):

Explain why it is necessary to adjust unrealised profit in opening inventory on consolidation.

Where service fees are accrued by group members,there is no tax effect on consolidation.

Using the same facts as Question 14 but assuming that S will depreciate the asset over its remaining estimated useful life of eight years,what is the depreciation expense adjustment required on consolidation one year after the intragroup sale?

A parent company owns 80% of the issued capital of its subsidiary.On consolidation,a sale of inventories between parent and subsidiary will be eliminated as follows:

Deferred tax assets and liabilities arising from accrual of intragroup interest on loans should be offset as a consolidation adjustment.

An impairment loss will be recognised in the group accounts when non-current assets are sold at a loss on an intragroup basis when value in use is:

Dividends paid by the parent company and all subsidiaries will be eliminated as consolidation adjustments.

P Ltd lends $200 000 to its subsidiary S Ltd.At the end of the year,S Ltd has paid interest of $18 000 and owes a further $2000 (assume a tax rate of 30%).The required consolidation entry is:

Which of the following accounts cannot be altered by a consolidation adjusting entry?

Using the same data as for Question 9,what would be the consolidation entry required for the next financial year (assuming S sold all the inventory during the next year)?

Where a parent entity sells inventories to a subsidiary,this is called an 'upstream' sale.

Consolidation entries never adjust cash because intragroup transactions do not alter the group's cash position.

For assets valued using the revaluation model consolidation,an adjustment will be required:

Text Objectives and Introduction to Consolidation

Principles of Consolidation

Fair Value Adjustments and Tax Effects

Non-Controlling Interest

Partly-Owned Subsidiaries: Indirect Non-Controlling Interest

Consolidated Cash Flow Statements

Accounting for Joint Arrangements

Accounting for Associates and Joint Ventures: the Equity Method

Translation and Consolidation of Foreign Currency Financial Statements

Segment Reporting by Diversified Entities

Filters