Deck 18: Consolidation: Intragroup Transactions

Question 1

Andronico Limited provided an advance of $500 000 to its subsidiary Galactico Limited. On consolidation the following adjustment is needed in relation to this intragroup advance:

A) no adjustment needed
B) $\text { DR } \quad \text { Advances to subsidiaries } \quad \$ 500,000$
$\text { CR } \quad \text { Advances from parent } \quad \$ 500,000$
C) $\begin{array} { l c c c c } \text { DR } & \text { Advances from parent } & \$ 500,000 \\\text { CR } & \text { Advances to subsidiaries } & \$ 500,000\end{array}$
D) $\begin{array} { l l l l } \text { DR } & \text { Advances from parent } & \$ 500,000 \\ \text { CR } & \text { Cash } & \$ 500,000\end{array}$

Answer 1

$\begin{array} { l c c c c } \text { DR } & \text { Advances from parent } & \$ 500,000 \\\text { CR } & \text { Advances to subsidiaries } & \$ 500,000\end{array}$

Question 2

Jameson purchased goods from its subsidiary for €10 000. The goods cost the subsidiary €6000. At reporting date, Jameson still held all of the goods. The company rate of tax is 30%. Which of the following consolidation adjustment entries is correct?

A) DR Income tax expense €1 200, CR Deferred tax liability €1 200
B) DR Income tax expense €1 200, CR Deferred tax asset €1 200
C) DR Deferred tax asset €1 200, CR Income tax expense €1 200
D) DR Deferred tax liability €1 200, CR Income tax expense €1 200.

Answer 2

C

Question 3

A subsidiary sold inventory to a parent entity for €10 000. The inventory originally cost the subsidiary €6000. At the end of the reporting period the parent had sold 50% of the inventory to an external party. The company tax rate is 30%. The deferred tax item that is recognised on consolidation is:

A) CR Deferred tax liability €1 200
B) CR Deferred tax liability €600
C) DR Deferred tax asset €1 200
D) DR Deferred tax asset €600.

Answer 3

D

Question 4

A consolidation worksheet adjustment to eliminate the effect of interest revenue and interest expense relating to intragroup advances has the following tax effect:

A) No tax effect;
B) Increase in deferred tax asset;
C) Increase in deferred tax liability;
D) Decrease in income tax expense.

Question 5

Angelo Limited sold inventory to its parent entity at a profit of $4 000. The inventory cost Angelo Limited $16 000. At the end of the reporting period 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:

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

Question 6

A subsidiary entity sold inventory 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 inventory was still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item:

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 7

IFRS 10 requires that intragroup transactions be:

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 8

A subsidiary entity sold inventory 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 inventory was still on hand. The adjustment entry to deal with this transaction on consolidation would include the following line item:

A) CR Inventory £4 000
B) CR Inventory £6 000
C) CR Inventory £10 000
D) CR Inventory £14 000.

Question 9

During the year ended 30 June 20X7 a subsidiary entity sold inventory to its parent entity at a profit of £8 000. The goods had originally cost the subsidiary £20 000. At the end of 30 June 20X7 all the inventory was still on hand. Ignoring tax effects, the adjustment entry to deal with this transaction on consolidation during the year ended 30 June 20X8 would include the following line item:

A) DR Cost of sales £8 000
B) CR Cost of sales £8 000
C) DR Cost of sales £20 000
D) CR Cost of sales £20 000.

Question 10

A subsidiary entity sold goods to its parent entity at a profit of £10 000. The goods had originally cost the subsidiary £15 000. At reporting date, the parent still held all of the goods. Which of the following adjustments must be included as part of the consolidation entry to eliminate this transaction?

A) CR Inventory £10 000
B) CR Inventory £15 000
C) DR Inventory £25 000
D) DR Inventory £15 000

Question 11

When eliminating an intragroup service which of the following would appear in the consolidation worksheet entry?

A) Dr Services expense
B) Dr Services revenue
C) Cr Income tax expense
D) Cr Deferred tax liability.

Question 12

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:

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

Question 13

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

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 14

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:

A) no adjustment needed;
B) $\text { DR\quad Interest revenue } \quad \$ 50,000$
$\text { CR\quad Interest expense } \quad \$ 50,000$
C) $\text { DR } \quad \text { Interest expense } \quad \$ 50,000$
$\text { CR \quad Interest revenue } \quad \$ 50,000$
D) $\text { DR } \quad \text { Retained earnings } \quad \$ 50,000$
$\text { CR\quad Cash }\quad\quad \$ 50,000$

Question 15

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

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

Question 16

A consolidation adjustment entry made to eliminate the intragroup sales of inventory at a profit would take the following form:

A) DR Cost of Sales, CR Sales, CR Inventory
B) DR Sales, CR Cost of Sales, CR Inventory
C) DR Cash, DR Cost of Sales, CR Inventory
D) DR Inventory, CR Sales, CR Cash.