Question 1

Pre-acquisition dividends are accounted for in the parent's books as a reduction in the investment in the subsidiary.

Accepted Answer

A) True 
 B)False  False

Question 2

Tax effect consolidation entries are not required when intragroup services are provided to entities within a group.

Accepted Answer

A) True 
 B)False  True

Question 3

Thurston Limited sold inventory to its parent entity,Cowboys Ltd,at a before-tax profit of $8000.The inventory originally cost Thurston Limited $32 000.At balance sheet date,Cowboys Limited had sold 90% of the inventory to an external party.The consolidation adjustment entry (excluding tax effects)will eliminate unrealised profit amounting to:

Accepted Answer

A) $800. 
B) $7200. 
C) $3200. 
D) $24 000. 
A) $800. 
B) $7200. 
C) $3200. 
D) $24 000. A

Question 4

A subsidiary sold inventory to its parent in year 1 at a before-tax profit of $15 000.At balance sheet date,the parent had not sold the inventory to an external party.The company tax rate is 30%.The year 1 consolidation worksheet will contain which of the following adjustment entries for inventory?

Accepted Answer

A) Dr Inventory $15 000 
B) Dr Inventory $10 500 
C) Cr Inventory $15 000 
D) Cr Inventory $10 500 
A) Dr Inventory $15 000 
B) Dr Inventory $10 500 
C) Cr Inventory $15 000 
D) Cr Inventory $10 500

Question 5

A subsidiary sold inventory to its parent for $40 000.The inventory originally cost the subsidiary $32 000.At balance sheet date,the parent had 20% of the inventory still on hand.The consolidation adjustment entry (excluding tax effects)will eliminate unrealised profit amounting to:

Accepted Answer

A) $6400. 
B) $1600. 
C) $8000. 
D) $9600. 
A) $6400. 
B) $1600. 
C) $8000. 
D) $9600.

Question 6

Unrealised profit in the opening inventory of a financial period is adjusted in the consolidation worksheet by a:

Accepted Answer

A) debit to retained earnings. 
B) credit to retained earnings. 
C) credit to inventory. 
D) debit to inventory. 
A) debit to retained earnings. 
B) credit to retained earnings. 
C) credit to inventory. 
D) debit to inventory.

Question 7

The effect of an intragroup sale of inventory at a profit where the inventory is still on hand at the end of the reporting period is that both profit and the inventory asset are overstated.

Accepted Answer

A) True 
 B)False

Question 8

When a non-depreciable non-current asset such as land is sold between entities within a group,the adjustment in relation to any gain or loss recognised on the transfer is carried forward until the asset is disposed of to an external party.

Accepted Answer

A) True 
 B)False

Question 9

A subsidiary sold inventory to its parent for $60 000.The inventory had previously cost the subsidiary $48 000.By reporting date,the parent had sold 75% of the inventory to a party outside the group.The company tax rate is 30%.Which of the following are the adjustment entries in the consolidation worksheet at reporting date?

Accepted Answer

A)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Question 10

When an interest bearing loan is advanced by a parent to a subsidiary,a credit is required on consolidation against the loan payable and interest revenue accounts.

Accepted Answer

A) True 
 B)False

Question 11

When a depreciable non-current asset is sold between entities within a group,any gain recognised on the sale is eliminated and realised through future use of the asset by the group.

Accepted Answer

A) True 
 B)False

Question 12

If an interim dividend is paid by a subsidiary to its parent,the consolidation entry to eliminate the transaction is which of the following?

Accepted Answer

A) Dr Interim dividend paid; Cr Dividend revenue 
B) Dr Dividend revenue; Cr Interim dividend paid 
C) Dr Dividend revenue; Cr Dividend payable 
D) Dr Interim dividend paid; Cr Cash 
A) Dr Interim dividend paid; Cr Dividend revenue 
B) Dr Dividend revenue; Cr Interim dividend paid 
C) Dr Dividend revenue; Cr Dividend payable 
D) Dr Interim dividend paid; Cr Cash

Question 13

Where an intragroup sale of an asset has been made and the asset was classified as inventory in the selling entity's books,but subsequently classified as plant in the buying entity's books,all depreciation recognised in the buying entity's books must be eliminated on consolidation.

Accepted Answer

A) True 
 B)False

Question 14

A subsidiary sold a quantity of inventory to its parent entity at a before-tax profit of $12 000.The original cost of the inventory to the subsidiary was $41 000.At the end of the year all of the inventory was still on hand.The consolidation adjustment entry to eliminate this transaction will include which of the following line items?

Accepted Answer

A) Cr Inventory $12 000 
B) Cr Inventory $53 000 
C) Cr Inventory $41 000 
D) Cr Inventory $29 000 
A) Cr Inventory $12 000 
B) Cr Inventory $53 000 
C) Cr Inventory $41 000 
D) Cr Inventory $29 000

Question 15

When a depreciable non-current asset is sold between entities within a group,any gain recognised on the sale is eliminated and realised through the future use of the asset by the group.This results in reduced depreciation and income tax expenses in future periods.

Accepted Answer

A) True 
 B)False

Question 16

The elimination of the full effects of intragroup transactions is required in the preparation of consolidated financial statements.

Accepted Answer

A) True 
 B)False

Question 17

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

Question 18

If an entity sells a non-current asset at a profit to another entity within the same group,which of the following consolidation adjustments is necessary to reflect the tax effect?

Accepted Answer

A) Dr Deferred tax asset 
B) Dr Deferred tax liability 
C) Dr Tax expense 
D) Cr Deferred tax asset 
A) Dr Deferred tax asset 
B) Dr Deferred tax liability 
C) Dr Tax expense 
D) Cr Deferred tax asset

Question 19

When a dividend is declared,but unpaid at the end of a financial year,credit consolidation adjustments are required against both the dividend declared and dividend receivable account.

Accepted Answer

A) True 
 B)False

Question 20

When an interest bearing loan is advanced by a parent to a subsidiary,there is no tax effect consolidation entry required as assets and liabilities are reduced equally.

Accepted Answer

A) True 
 B)False

Exam 20: Consolidation: Intragroup Transactions

Pre-acquisition dividends are accounted for in the parent's books as a reduction in the investment in the subsidiary.

Tax effect consolidation entries are not required when intragroup services are provided to entities within a group.

A subsidiary sold inventory to its parent in year 1 at a before-tax profit of $15 000.At balance sheet date,the parent had not sold the inventory to an external party.The company tax rate is 30%.The year 1 consolidation worksheet will contain which of the following adjustment entries for inventory?

A subsidiary sold inventory to its parent for $40 000.The inventory originally cost the subsidiary $32 000.At balance sheet date,the parent had 20% of the inventory still on hand.The consolidation adjustment entry (excluding tax effects)will eliminate unrealised profit amounting to:

Unrealised profit in the opening inventory of a financial period is adjusted in the consolidation worksheet by a:

The effect of an intragroup sale of inventory at a profit where the inventory is still on hand at the end of the reporting period is that both profit and the inventory asset are overstated.

When a non-depreciable non-current asset such as land is sold between entities within a group,the adjustment in relation to any gain or loss recognised on the transfer is carried forward until the asset is disposed of to an external party.

When an interest bearing loan is advanced by a parent to a subsidiary,a credit is required on consolidation against the loan payable and interest revenue accounts.

When a depreciable non-current asset is sold between entities within a group,any gain recognised on the sale is eliminated and realised through future use of the asset by the group.

If an interim dividend is paid by a subsidiary to its parent,the consolidation entry to eliminate the transaction is which of the following?

Where an intragroup sale of an asset has been made and the asset was classified as inventory in the selling entity's books,but subsequently classified as plant in the buying entity's books,all depreciation recognised in the buying entity's books must be eliminated on consolidation.

When a depreciable non-current asset is sold between entities within a group,any gain recognised on the sale is eliminated and realised through the future use of the asset by the group.This results in reduced depreciation and income tax expenses in future periods.

The elimination of the full effects of intragroup transactions is required in the preparation of consolidated financial statements.

AASB 10 Consolidated Financial Statements requires that intragroup transactions be:

If an entity sells a non-current asset at a profit to another entity within the same group,which of the following consolidation adjustments is necessary to reflect the tax effect?

When a dividend is declared,but unpaid at the end of a financial year,credit consolidation adjustments are required against both the dividend declared and dividend receivable account.

When an interest bearing loan is advanced by a parent to a subsidiary,there is no tax effect consolidation entry required as assets and liabilities are reduced equally.

Nature and Regulation of Companies

Financing Company Operations

Company Operations

Fundamental Concepts of Corporate Governance

Fair Value Measurement

Accounting for Company Income Tax

Financial Instruments

Foreign Currency Transactions and Forward Exchange Contracts

Property, Plant and Equipment

Leases

Intangible Assets

Business Combinations

Impairment of Assets

Disclosure: Legal Requirements and Accounting Polices

Disclosure: Presentation of Financial Statements

Disclosure: Statement of Cash Flows

Disclosure: Translation of Financial Statements Into a Presentation Currency

Consolidation: Controlled Entities

Consolidation: Wholly Owned Subsidiaries

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Investments in Joint Arrangements

Insolvency and Liquidation

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