Deck 17: 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)DR Advances to subsidiaries $500 000 CR Advances from parent $500 000
C)DR Advances from parent $500 000 CR Advances to subsidiaries $500 000
D)DR Advances from parent $500 000 CR Cash $500 000

Answer 1

C

Question 2

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:

Answer 2

B

Question 3

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:

A)DR Asset CR Cash
B)DR Cash CR Asset
C)DR Gain on sale CR Asset
D)DR Asset CR Gain on sale.

Answer 3

C

Question 4

AASB 10 Consolidated Financial Statements,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 5

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)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 6

In May 20X7,a parent entity sold inventory to a subsidiary entity for $30 000.The inventory had previously cost the parent entity $24 000.The entire inventory is still held by the subsidiary at reporting date,30 June 20X7.Ignoring tax effects,the adjustment entry in the consolidation worksheet at reporting date is:

Question 7

A parent entity group sold a depreciable non-current asset to a subsidiary entity for $2800.The asset originally cost $3000 and at the date of sale accumulated depreciation was $500.The amount of the unrealised gain on sale to be eliminated is:

A)$2800
B)$500
C)$300
D)$200.

Question 8

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 9

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 10

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:

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

Question 11

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 12

During the year ended 30 June 20X7,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 reporting date is:

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:

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

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:

Question 15

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 16

Angelo Limited sold inventory to its parent entity at a profit of $4 000.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:

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

Question 17

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 to reflect the tax effect of the depreciation adjustment for the year ended 30 June 20X7 will result in an increase in:

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

Question 18

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 19

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 consolidation elimination entries at 30 June 20X7 in relation to the sale of plant is (rounded to nearest dollar):

Question 20

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 21

Explain why there is generally no tax-effect in respect to consolidation adjustments for intragroup dividends.

Question 22

Explain why consolidation adjustments are necessary in relation to intra-group borrowings.

Question 23

Explain how profits or losses on depreciable asset transfers are realised by a consolidated group.

Question 24

Explain the meaning of the term 'unrealised profits' in relation to the transfer of assets within a group of entities.

Question 25

Discuss the concept of realisation and the implications for consolidated financial reporting.