Question 1

If a dividend is paid out of profits that are earned after the acquisition date, it is known as:

Accepted Answer

A)  a final dividend 
B)  a post-acquisition dividend 
C)  a temporary dividend 
D)  a pre-acquisition dividend. 
A)  a final dividend 
B)  a post-acquisition dividend 
C)  a temporary dividend 
D)  a pre-acquisition dividend. B

Question 2

On 16 May 20X4, Z Ltd sold equipment to N Ltd for $75 000. The equipment had a carrying amount at time of sale of $60 000. The equipment was depreciated by Z Ltd at 10% p.a. on cost, while N Ltd applies a rate of 8%. The consolidation worksheet entry for the year ended 30 June 20X4 would include the following adjustment in relation to depreciation:
I made a change to the original question, as the original question is exactly the same as in the Illustrative Example 26.2 on p.870.

Accepted Answer

A)  DR Depreciation Expense $\quad 1680$
CR Accumulated Depreciation$\quad 1680$ 
B) DR Accumulated Depreciation $\quad 1680$
CR Depreciation Expense$\quad 1680$ 
C)  DR Depreciation Expense $\quad 2100$
CR Accumulated Depreciation $\quad 2100$ 
D)  $\text { DR Accumulated Depreciation } \quad 2100$
$\text { CR Depreciation Expense \quad\quad} 2100$ 
A)  DR Depreciation Expense $\quad 1680$
CR Accumulated Depreciation$\quad 1680$ 
B) DR Accumulated Depreciation $\quad 1680$
CR Depreciation Expense$\quad 1680$ 
C)  DR Depreciation Expense $\quad 2100$
CR Accumulated Depreciation $\quad 2100$ 
D)  $\text { DR Accumulated Depreciation } \quad 2100$
$\text { CR Depreciation Expense \quad\quad} 2100$ B

Question 3

When a subsidiary declares a final dividend payable to a parent who has a 100% interest in the subsidiary, the parent recognises a dividend receivable and the subsidiary recognises a dividend payable. In addition to the elimination of these two items on consolidation, the following items must also be eliminated:

Accepted Answer

A)  Dividend declared and Retained earnings. 
B)  Dividend declared and Dividend revenue. 
C)  Dividend revenue and Cash. 
D)  Dividend declared and Cash. 
A)  Dividend declared and Retained earnings. 
B)  Dividend declared and Dividend revenue. 
C)  Dividend revenue and Cash. 
D)  Dividend declared and Cash. B

Question 4

Angelo Limited sold inventory to its parent entity at a profit of $4000. The inventory cost Angelo Limited $16 000. At balance sheet date the parent had sold 50% of the inventory to an external party. The consolidation adjustment entry (excluding tax effects) will eliminate unrealised profit amounting to:

Accepted Answer

A)  $2 000 
B)  $4 000 
C)  $12 000 
D)  $16 000 
A)  $2 000 
B)  $4 000 
C)  $12 000 
D)  $16 000

Question 5

Jameson purchased goods from its subsidiary for $10 000. The goods cost the subsidiary $6000. The company rate of tax is 30%. Which of the following consolidation adjustment entries is correct?

Accepted Answer

A)  DR Tax expense $1 200, CR Deferred tax liability $1 200 
B)  DR Tax expense $1 200, CR Deferred tax asset $1 200 
C)  DR Deferred tax asset $1 200, CR Tax expense $1 200 
D)  DR Deferred tax liability $1 200, CR Tax expense $1 200 
A)  DR Tax expense $1 200, CR Deferred tax liability $1 200 
B)  DR Tax expense $1 200, CR Deferred tax asset $1 200 
C)  DR Deferred tax asset $1 200, CR Tax expense $1 200 
D)  DR Deferred tax liability $1 200, CR Tax expense $1 200

Question 6

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

Accepted Answer

A)  DR $\quad$Asset
CR$\quad$Cash 
B)  DR$\quad$Cash
CR$\quad$Asset 
C)  $\begin{array} { l l } 
\text { DR } & \text { Gain on sale } \
CR& \text { Asset }
\end{array}$ 
D)  DR$\quad$ Asset
CR   $\quad$Gain on sale. 
A)  DR $\quad$Asset
CR$\quad$Cash 
B)  DR$\quad$Cash
CR$\quad$Asset 
C)  $\begin{array} { l l } 
\text { DR } & \text { Gain on sale } \
CR& \text { Asset }
\end{array}$ 
D)  DR$\quad$ Asset
CR   $\quad$Gain on sale.

Question 7

Winter Limited paid an interim dividend of $5 000 to its parent entity. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction?
I made a change to the original question, as the original question is very similar to Q4.

Accepted Answer

A)  No tax effect entry required. 
B)  DR Deferred Tax Asset $1 500 
C)  DR Income Tax Expense $1 500 
D)  DR Retained Earnings $1 500 
A)  No tax effect entry required. 
B)  DR Deferred Tax Asset $1 500 
C)  DR Income Tax Expense $1 500 
D)  DR Retained Earnings $1 500

Question 8

A subsidiary entity sold inventory to a parent entity for $30 000. The inventory had previously cost the subsidiary entity $24 000. By reporting date the parent entity had sold 75% of the inventory 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) $\begin{array} { l l l r } 
\text { Sales revenue } & \mathrm { Dr } & 30000 & \
\quad \text { Cost of sales } & \mathrm { Cr } & 24000 \
\quad \text { Inventory } & \mathrm { Cr } & 6000 \
\text { Deferred tax asset } & \mathrm { Dr } & 1800 & \
\quad \text { Income tax expense } & \mathrm { Cr } &1800
\end{array}$ 
B) $\begin{array} { l l c r } 
\text { Sales revenue } & \mathrm { Dr } & 30000 & \
\quad \text { Cost of sales } & \mathrm { Cr } & 28500 \
\text { Inventory } & \mathrm { Cr } &1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Income tax expense } & \mathrm { Cr } & 450
\end{array}$ 
C) $\begin{array} { l l c r } 
\text { Sales revenue } & \mathrm { Dr } & 22500 & \
\quad \text { Cost of sales } & \mathrm { Cr } &  18000 \
\text { Inventory } & \mathrm { Cr } &  4500 \
\text { Deferred tax asset } & \mathrm { Dr } & 1350 & \
\text { Income tax expense } & \mathrm { Cr } &  1350
\end{array}$ 
D)  $\begin{array} { l l c c } 
\text { Sales revenue } & \mathrm { Dr } & 7500 & \
\text { Cost of sales } & \mathrm { Cr } & 6000 \
\text { Inventory } & \mathrm { Cr } &  1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Income tax expense } & \mathrm { Cr } & 450
\end{array}$ 
A) $\begin{array} { l l l r } 
\text { Sales revenue } & \mathrm { Dr } & 30000 & \
\quad \text { Cost of sales } & \mathrm { Cr } & 24000 \
\quad \text { Inventory } & \mathrm { Cr } & 6000 \
\text { Deferred tax asset } & \mathrm { Dr } & 1800 & \
\quad \text { Income tax expense } & \mathrm { Cr } &1800
\end{array}$ 
B) $\begin{array} { l l c r } 
\text { Sales revenue } & \mathrm { Dr } & 30000 & \
\quad \text { Cost of sales } & \mathrm { Cr } & 28500 \
\text { Inventory } & \mathrm { Cr } &1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Income tax expense } & \mathrm { Cr } & 450
\end{array}$ 
C) $\begin{array} { l l c r } 
\text { Sales revenue } & \mathrm { Dr } & 22500 & \
\quad \text { Cost of sales } & \mathrm { Cr } &  18000 \
\text { Inventory } & \mathrm { Cr } &  4500 \
\text { Deferred tax asset } & \mathrm { Dr } & 1350 & \
\text { Income tax expense } & \mathrm { Cr } &  1350
\end{array}$ 
D)  $\begin{array} { l l c c } 
\text { Sales revenue } & \mathrm { Dr } & 7500 & \
\text { Cost of sales } & \mathrm { Cr } & 6000 \
\text { Inventory } & \mathrm { Cr } &  1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Income tax expense } & \mathrm { Cr } & 450
\end{array}$

Question 9

The changes in accounting standards since year 2008 require:

Accepted Answer

A)  dividends from pre-acquisition equity to be accounted for by parent as a return on investment in the subsidiary. 
B)  dividends from post-acquisition equity to be accounted for by parent as revenue. 
C)  all dividends from a subsidiary to be accounted for by parent as a return on investment in the subsidiary. 
D)  all dividends from a subsidiary to be accounted for by parent as revenue. 
A)  dividends from pre-acquisition equity to be accounted for by parent as a return on investment in the subsidiary. 
B)  dividends from post-acquisition equity to be accounted for by parent as revenue. 
C)  all dividends from a subsidiary to be accounted for by parent as a return on investment in the subsidiary. 
D)  all dividends from a subsidiary to be accounted for by parent as revenue.

Question 10

The consolidation adjustments in relation to intragroup borrowings:
I made a change to the original question, as the original question is the same as Q11.

Accepted Answer

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

Question 11

The test indicating that an intragroup business transaction has been realised is:

Accepted Answer

A)  the involvement of an external party in the transaction. 
B)  the generation of profit from the transaction. 
C)  whether or not an operating profit or loss occurred as a result of the transaction. 
D)  the presence of only entities within the group as parties to the transaction. 
A)  the involvement of an external party in the transaction. 
B)  the generation of profit from the transaction. 
C)  whether or not an operating profit or loss occurred as a result of the transaction. 
D)  the presence of only entities within the group as parties to the transaction.

Question 12

A subsidiary entity sold inventory to its parent entity at a profit of $8000. The goods had originally cost the subsidiary $20 000. At the end of the year all the inventory was 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 $28 000 
B)  CR Cost of sales $20 000 
C)  CR Cost of sales $12 000 
D)  CR Cost of sales $8 000. 
A)  CR Cost of sales $28 000 
B)  CR Cost of sales $20 000 
C)  CR Cost of sales $12 000 
D)  CR Cost of sales $8 000.

Question 13

A Ltd sold an item of plant to B Ltd on 1 January 20X7 for $25 000. The asset had cost A Ltd $30 000 when acquired on 1 January 20X5. At that time the useful life of the plant was assessed at 6 years. The adjustment necessary on consolidation in relation to the transfer of plant as at 30 June 20X8 will result in:

Accepted Answer

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

Question 14

The followings are the key questions to consider when determining the appropriate consolidation adjustment entries, except:

Accepted Answer

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

Question 15

JoJo Ltd provided an advance of $500 000 to its subsidiary BoBo Ltd. Interest of $50 000 was charged during the year ended 30 June 20X8. On consolidation, the following adjustment is needed at 30 June 20X8 in relation to the interest charged:

Accepted Answer

A)  no adjustment needed 
B)  $\begin{array}{lrrr}
\text { DR } & & \text { Interest revenue } & \$ 50,000 \
& \mathrm{CR} & \text { Interest expense } & \$ 50,000
\end{array}$ 
C)  $\text { DR } \quad \text { Interest expense } \quad \$ 50,000$
$\text { CR } \quad \text { Interest revenue } \quad \$ 50,000$ 
D) $\text { DR } \quad \text { Retained earnings } \quad \$ 50,000$
$\text { CR } \quad \text { Cash } \quad \$ 50,000$ 
A)  no adjustment needed 
B)  $\begin{array}{lrrr}
\text { DR } & & \text { Interest revenue } & \$ 50,000 \
& \mathrm{CR} & \text { Interest expense } & \$ 50,000
\end{array}$ 
C)  $\text { DR } \quad \text { Interest expense } \quad \$ 50,000$
$\text { CR } \quad \text { Interest revenue } \quad \$ 50,000$ 
D) $\text { DR } \quad \text { Retained earnings } \quad \$ 50,000$
$\text { CR } \quad \text { Cash } \quad \$ 50,000$

Question 16

The realisation of the profit or loss on a depreciable asset transferred within the group:

Accepted Answer

A)  is assumed to occur when the future benefits embodied in the asset are consumed by the group. 
B)  occurs when the asset is sold to an external party. 
C)  results in an inconsistent pattern with the allocation of depreciation of the asset. 
D)  is assumed to occur when an external entity becomes directly involved with the asset. 
A)  is assumed to occur when the future benefits embodied in the asset are consumed by the group. 
B)  occurs when the asset is sold to an external party. 
C)  results in an inconsistent pattern with the allocation of depreciation of the asset. 
D)  is assumed to occur when an external entity becomes directly involved with the asset.

Question 17

A Ltd sells to J Ltd an item of inventory on 1 January 20X3 for $6 000. The item cost A Ltd $3 000 earlier in the current year. J Ltd intends to use the item as plant with a useful life of 10 years, and no estimated salvage value. A straight-line depreciation rate of 10% p.a. is applicable. The tax rate is 30%. The worksheet entry for the year ended 30 June 20X3 would include the following adjustment:

Accepted Answer

A)  DR Plant 3 000 
B)  CR Plant 3 000 
C)  DR Inventory 3 000 
D)  CR Inventory 3 000 
A)  DR Plant 3 000 
B)  CR Plant 3 000 
C)  DR Inventory 3 000 
D)  CR Inventory 3 000

Question 18

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

Accepted Answer

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

Question 19

During the year ended 30 June 20X7 a subsidiary entity sold inventory to a parent entity for $30 000. The inventory had previously cost the subsidiary entity $24 000. By 30 June 20X7 the parent entity had sold 75% of the inventory to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at 30 June 20X8 is:

Accepted Answer

A)  $\begin{array} { l l c r } 
\text { Sales revenue } & \mathrm { Dr } & 30,000 & \
\text { Cost of sales } & \mathrm { Cr } &  28,500 \
\text { Inventory } & \mathrm { Cr } &  1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Income tax expense } & \mathrm { Cr } &  450
\end{array}$ 
B)  $\begin{array} { l l r l } 
\text { Retained earnings } & \mathrm { Dr } & 1400 & \
\text { Income tax expense } & \mathrm { Dr } & 600 & \
\text { Cost of sales } & \mathrm { Cr } & & 2000
\end{array}$ 
C)  $\begin{array} { l l r l } 
\text { Retained earnings } & \mathrm { Dr } & 1050 & \
\text { Income tax expense } & \mathrm { Dr } & 450 & \
\quad \text { Cost of sales } & \mathrm { Cr } & & 1500
\end{array}$ 
D)  $\begin{array} { l l c r } 
\text { Retained earnings } & \mathrm { Dr } & 1500 & \
\text { Inventory } & \mathrm { Cr } &  1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Retained earnings } & \mathrm { Cr } & 450
\end{array}$ 
A)  $\begin{array} { l l c r } 
\text { Sales revenue } & \mathrm { Dr } & 30,000 & \
\text { Cost of sales } & \mathrm { Cr } &  28,500 \
\text { Inventory } & \mathrm { Cr } &  1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Income tax expense } & \mathrm { Cr } &  450
\end{array}$ 
B)  $\begin{array} { l l r l } 
\text { Retained earnings } & \mathrm { Dr } & 1400 & \
\text { Income tax expense } & \mathrm { Dr } & 600 & \
\text { Cost of sales } & \mathrm { Cr } & & 2000
\end{array}$ 
C)  $\begin{array} { l l r l } 
\text { Retained earnings } & \mathrm { Dr } & 1050 & \
\text { Income tax expense } & \mathrm { Dr } & 450 & \
\quad \text { Cost of sales } & \mathrm { Cr } & & 1500
\end{array}$ 
D)  $\begin{array} { l l c r } 
\text { Retained earnings } & \mathrm { Dr } & 1500 & \
\text { Inventory } & \mathrm { Cr } &  1500 \
\text { Deferred tax asset } & \mathrm { Dr } & 450 & \
\text { Retained earnings } & \mathrm { Cr } & 450
\end{array}$

Question 20

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

Accepted Answer

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

Exam 26: Consolidation: Intragroup Transactions

If a dividend is paid out of profits that are earned after the acquisition date, it is known as:

Jameson purchased goods from its subsidiary for $10 000. The goods cost the subsidiary $6000. The company rate of tax is 30%. Which of the following consolidation adjustment entries is correct?

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

Winter Limited paid an interim dividend of $5 000 to its parent entity. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction? I made a change to the original question, as the original question is very similar to Q4.

The changes in accounting standards since year 2008 require:

The consolidation adjustments in relation to intragroup borrowings: I made a change to the original question, as the original question is the same as Q11.

The test indicating that an intragroup business transaction has been realised is:

A subsidiary entity sold inventory to its parent entity at a profit of $8000. The goods had originally cost the subsidiary $20 000. At the end of the year all the inventory was still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item:

The followings are the key questions to consider when determining the appropriate consolidation adjustment entries, except:

JoJo Ltd provided an advance of $500 000 to its subsidiary BoBo Ltd. Interest of $50 000 was charged during the year ended 30 June 20X8. On consolidation, the following adjustment is needed at 30 June 20X8 in relation to the interest charged:

The realisation of the profit or loss on a depreciable asset transferred within the group:

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

Janus Limited, a subsidiary entity, sold a non-current asset at a profit to its parent entity. 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

Shareholders Equity: Share Capital and Reserves

Fair Value Measurement

Revenue

Provisions, Contingent Liabilities and Contingent Assets

Income Taxes

Financial Instruments

Share-Based Payments

Translation of the Financial Statements of Foreign Entities

Employee Benefits

Inventories

Property, Plant and Equipment

Leases

Understanding Australian Accounting Standards

Impairment of Assets

Accounting for Mineral Resources

Agriculture

Financial Statement Presentation

Statement of Cash Flows

Earnings Per Share

Operating Segments

Operating Segments

Business Combinations

Consolidation: Principles and Accounting Requirements

Consolidation: Non Controlling Interest

Joint Arrangements

Associates and Joint Ventures

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