Deck 25: Consolidation: Intragroup Transactions

Question 1

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.

Answer 1

A

Question 2

IFRS 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.

Answer 2

D

Question 3

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.

Answer 3

C

Question 4

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.

Question 5

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 6

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:

Question 7

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 8

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 9

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 10

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 11

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 12

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 13

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 14

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 15

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.

Question 16

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 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 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 18

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 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 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.

Question 21

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 22

If an entity sells a non-current asset at a profit to another entity within the same group the following consolidation adjustment is necessary to reflect the tax effect:

A) DR Deferred tax asset
B) DR Deferred tax liability
C) DR Tax expense
D) DR Retained earnings.

Question 23

On 16 May 20X4, Z Ltd sold equipment to N Ltd for $50 000, this asset having a carrying amount at time of sale of $40 000. The equipment was regarded by Z Ltd as a depreciable non-current asset, being depreciated at 10% p.a. on cost, whereas N Ltd records the machinery as inventory. The asset was sold by N Ltd before 30 June 20X4. The worksheet entry for the year ended 30 June 20X3 would include the following adjustment:

A) Dr Cost of sales 10 000
B) Cr Cost of sales 10 000
C) Dr Inventory 10 000
D) Cr Inventory 10 000.

Question 24

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 25

Equipment costing $10 000 was sold by one entity within a group to another for $4000. Accumulated depreciation at date of sale was $3000. The consolidation entry will contain the following adjustment to the amount of the Equipment:

A) Increase of $1000
B) Reduction of $1000
C) Increase of $3000
D) Reduction of $3000.

Question 26

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) CR Asset, DR Cash
C) DR Gain on sale, CR Asset
D) CR Gain on sale, DR Asset.

Question 27

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.