Question 1

With regards to services provided within the group:

Accepted Answer

A)  there will be an increase in deferred tax assets. 
B)  the consolidation adjustments do not affect profit of the group. 
C)  the group's profit equals service revenue less service expense. 
D)  there will be an increase in income tax expense. 
A)  there will be an increase in deferred tax assets. 
B)  the consolidation adjustments do not affect profit of the group. 
C)  the group's profit equals service revenue less service expense. 
D)  there will be an increase in income tax expense.

Question 2

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 2018. On consolidation, the following adjustment is needed at 30 June 2018 in relation to the interest charged:

Accepted Answer

A)  no adjustment needed. 
B)  Dr Interest revenue $50 000 Cr Interest expense $50 000 
C)  Dr Interest expense $50 000 Cr Interest revenue $50 000 
D)  Dr Retained earnings $50 000 Cr Cash $50 000 
A)  no adjustment needed. 
B)  Dr Interest revenue $50 000 Cr Interest expense $50 000 
C)  Dr Interest expense $50 000 Cr Interest revenue $50 000 
D)  Dr Retained earnings $50 000 Cr Cash $50 000

Question 3

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

Accepted Answer

A)  the involvement of an external party. 
B)  the generation of profit from the transaction. 
C)  whether or not a 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. 
B)  the generation of profit from the transaction. 
C)  whether or not a 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 4

On 16 May 2017, Z Ltd sold equipment to its subsidiary, 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 2017 would include the following adjustment in relation to depreciation:

Accepted Answer

A)  Dr Depreciation expense $1 680 Cr Accumulated depreciation $1 680 
B)  Dr Accumulated depreciation $1 680 Cr Depreciation expense $1 680 
C)  Dr Depreciation expense $2 100 Cr Accumulated depreciation $2 100 
D)  Dr Accumulated depreciation $2 100 Cr Depreciation expense $2 100 
A)  Dr Depreciation expense $1 680 Cr Accumulated depreciation $1 680 
B)  Dr Accumulated depreciation $1 680 Cr Depreciation expense $1 680 
C)  Dr Depreciation expense $2 100 Cr Accumulated depreciation $2 100 
D)  Dr Accumulated depreciation $2 100 Cr Depreciation expense $2 100

Question 5

During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $8 000. The goods had originally cost the subsidiary $20 000. At the end of the year all the inventories were 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 6

During the current period, a subsidiary entity sold inventories to its parent entity at a profit of $4 000. The goods had originally cost the subsidiary $10 000. At the end of the year all the inventories were still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item:

Accepted Answer

A)  Cr Inventories $4 000. 
B)  Cr Inventories $6 000. 
C)  Cr Inventories $10 000. 
D)  Cr Inventories $14 000. 
A)  Cr Inventories $4 000. 
B)  Cr Inventories $6 000. 
C)  Cr Inventories $10 000. 
D)  Cr Inventories $14 000.

Question 7

Which of the following statements is incorrect:

Accepted Answer

A)  the effects of intragroup transactions need to be eliminated in full. 
B)  the adjustments for the elimination of the effects of intragroup transactions may need to be repeated in next periods. 
C)  the effects of intragroup transactions that need to be eliminated are those related to the current profit. 
D)  the effects of intragroup transactions are recognised in the individual statements of financial position and/or the individual statements of comprehensive income. 
A)  the effects of intragroup transactions need to be eliminated in full. 
B)  the adjustments for the elimination of the effects of intragroup transactions may need to be repeated in next periods. 
C)  the effects of intragroup transactions that need to be eliminated are those related to the current profit. 
D)  the effects of intragroup transactions are recognised in the individual statements of financial position and/or the individual statements of comprehensive income.

Question 8

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 only 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 only 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 only 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 only when an external entity becomes directly involved with the asset.

Question 9

During the year ended 30 June 2017, a parent entity rents a warehouse from a subsidiary entity for $100 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2017 is:

Accepted Answer

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

Question 10

A subsidiary sold inventories to its parent entity in the year ended 30 June 2017 at a profit of $5 000. At balance sheet date the parent had not sold the inventories. The company tax rate is 30%. The consolidation worksheet prepared at 30 June 2017 will contain the following adjustment entry for inventories:

Accepted Answer

A)  Dr Inventories $5 000. 
B)  Dr Inventories $3 500. 
C)  Cr Inventories $5 000. 
D)  Cr Inventories $3 500. 
A)  Dr Inventories $5 000. 
B)  Dr Inventories $3 500. 
C)  Cr Inventories $5 000. 
D)  Cr Inventories $3 500.

Question 11

The consolidation adjustments in relation to intragroup borrowings:

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 12

Which of the following statements is incorrect:

Accepted Answer

A)  adjustments are required for both prior period and current period intragroup transactions to the extent that the effects of those transactions are still present in the individual accounts of the entities involved. 
B)  adjustments are determined by comparing the amounts recognised in the individual accounts affected with the amounts that the group should recognise. 
C)  when adjustments for intragroup transactions affect the carrying amount of assets or liabilities, further adjustments are made for the tax effect of those adjustments. 
D)  the profits or losses generated from intragroup transfers of assets are considered realised from the group's perspective until such movement when those assets are transferred to external entities. 
A)  adjustments are required for both prior period and current period intragroup transactions to the extent that the effects of those transactions are still present in the individual accounts of the entities involved. 
B)  adjustments are determined by comparing the amounts recognised in the individual accounts affected with the amounts that the group should recognise. 
C)  when adjustments for intragroup transactions affect the carrying amount of assets or liabilities, further adjustments are made for the tax effect of those adjustments. 
D)  the profits or losses generated from intragroup transfers of assets are considered realised from the group's perspective until such movement when those assets are transferred to external entities.

Question 13

On 1 July 2016, a parent entity rents a warehouse for one year from a subsidiary entity for $100 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2018 is:

Accepted Answer

A)    
B)    
C)    
D)  No entry required. 
A)    
B)    
C)    
D)  No entry required.

Question 14

A Ltd sold an item of plant to its subsidiary, B Ltd, on 1 January 2017 for $25 000. The asset had cost A Ltd $30 000 and had an useful life of 6 years when acquired on 1 January 2015 from an external party. The adjustment necessary on consolidation to reflect the tax effect of the depreciation adjustment for the year ended 30 June 2017 will result in an increase in:

Accepted Answer

A)  deferred tax assets. 
B)  deferred tax liabilities. 
C)  income tax expense. 
D)  current tax liability. 
A)  deferred tax assets. 
B)  deferred tax liabilities. 
C)  income tax expense. 
D)  current tax liability.

Question 15

AASB 10 Consolidated Financial Statements, requires that the effect of 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 16

A Ltd sold an item of plant to its subsidiary, B Ltd, on 1 January 2017 for $25 000. The asset had cost A Ltd $30 000 and had an useful life of 6 years when acquired on 1 January 2015 from an external party. The adjustment necessary on consolidation in relation to the transfer of plant as at 30 June 2018 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 17

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.

Question 18

During the year ended 30 June 2017, a subsidiary entity sold inventories to a parent entity for $30 000. The inventories had previously cost the subsidiary entity $24 000. By 30 June 2017 the parent entity had sold all the inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at 30 June 2018 is:

Accepted Answer

A)    
B)    
C)  No entry is required 
D)    
A)    
B)    
C)  No entry is required 
D)

Question 19

A Ltd sold an item of plant to its subsidiary, B Ltd, on 1 January 2017 for $25 000. The asset had cost A Ltd $30 000 and had an useful life of 6 years when acquired on 1 January 2015 from an external party. The adjustment necessary on consolidation in relation to the transfer of plant as at 30 June 2017 will result in:

Accepted Answer

A)  an increase in current year profit. 
B)  a decrease in current year profit. 
C)  an increase in current year profit and non-current assets. 
D)  a decrease in current year profit and non-current assets. 
A)  an increase in current year profit. 
B)  a decrease in current year profit. 
C)  an increase in current year profit and non-current assets. 
D)  a decrease in current year profit and non-current assets.

Question 20

During the current period, Angelo Limited sold inventories to its parent entity at a profit of $4 000. The inventories cost Angelo Limited $16 000. At balance sheet date the parent had sold 50% of the inventories 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.

Exam 28: Consolidation: Intragroup Transactions

With regards to services provided within the group:

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 2018. On consolidation, the following adjustment is needed at 30 June 2018 in relation to the interest charged:

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

Which of the following statements is incorrect:

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

During the year ended 30 June 2017, a parent entity rents a warehouse from a subsidiary entity for $100 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2017 is:

The consolidation adjustments in relation to intragroup borrowings:

Which of the following statements is incorrect:

On 1 July 2016, a parent entity rents a warehouse for one year from a subsidiary entity for $100 000. The company tax rate is 30%. The consolidation adjustment entry needed at 30 June 2018 is:

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

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Impairment of Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share-Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Reporting

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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