Deck 20: Consolidation: Intragroup Transactions

Question 1

Sky Limited,a subsidiary entity,sold a non-current asset at a profit to its parent entity,Dive Limited.The adjustment necessary on consolidation to reflect the tax effect of this transaction will result in a(n):

A)increase in deferred tax assets.
B)increase in deferred tax liabilities.
C)increase in income tax expense.
D)decrease in deferred tax assets.

Answer 1

A

Question 2

Which of the following intragroup transactions do not affect the carrying amounts of assets and liabilities?

A)Management fees paid
B)Sale of plant at a profit
C)Sale of land for an amount greater than its carrying amount
D)Sale of inventory at a loss

Answer 2

A

Question 3

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:

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

Answer 3

B

Question 4

Ali Ltd sold an item of plant to its subsidiary Baba Ltd on 1 January 2017 for $100 000.The asset had cost Ali Ltd $120 000 when acquired on 1 January 2015.At that time the remaining useful life of the plant was assessed at 5 years.The adjustment necessary on consolidation as at 30 June 2018 in relation to the sale of plant 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 5

During the year ended 30 June 2014,a subsidiary sold inventory to its parent at a before-tax profit of $20 000.The inventory originally cost the subsidiary $87 000.At 30 June 2014 all the inventory was still on hand and it was sold to an external party in July 2014.Ignoring tax effects,the consolidation adjustment entry to eliminate this transaction during the year ended 30 June 2015 would include which of the following line items?

A)Dr Cost of sales $20 000
B)Cr Cost of sales $20 000
C)Dr Cost of sales $87 000
D)Cr Cost of sales $87 000

Question 6

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

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

Question 7

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?

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

Question 8

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

Question 9

Abra Ltd sold an item of plant to its subsidiary Cadabra Ltd on 1 January 2017 for $50 000.The asset had cost Abra Ltd $60 000 when acquired on 1 January 2015.At that time the useful life of the plant was assessed at 6 years.Rounded to the nearest dollar,the consolidation elimination entries at 30 June 2017 in relation to the sale of plant are which of the following?

Question 10

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?

Question 11

Adam Ltd sold an item of plant to its subsidiary Eve Ltd on 1 January 2017 for $50 000.The asset had cost Adam Ltd $60 000 when acquired on 1 January 2015.At that time,the remaining useful life of the plant was assessed at 5 years.The adjustment necessary on consolidation to reflect the tax effect of the depreciation adjustment for the year ended 30 June 2017 will result in a decrease in:

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

Question 12

A subsidiary sold inventory to its parent for $50 000.The inventory originally cost the subsidiary $38 000.At balance sheet date,the parent had sold 50% of the inventory to an external party.The company tax rate is 30%.Which of the following is the deferred tax item that is recognised on consolidation?

A)Cr Deferred tax liability $3600
B)Cr Deferred tax liability $1800
C)Dr Deferred tax asset $3600
D)Dr Deferred tax asset $1800

Question 13

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:

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

Question 14

Knights Ltd purchased inventory from its subsidiary,Gidley Ltd,for $20 000.The goods originally cost Gidley Ltd $12 000.The company tax rate is 30%.Assuming that all of the inventory was still on hand at the end of the year,which of the following consolidation adjustment entries is required?

A)Dr Tax expense $2400; Cr Deferred tax liability $2400
B)Dr Tax expense $2400; Cr Deferred tax asset $2400
C)Dr Deferred tax asset $2400; Cr Tax expense $2400
D)Dr Deferred tax liability $2400; Cr Tax expense $2400

Question 15

A parent entity sold a depreciable non-current asset to a subsidiary entity for $5600.The asset originally cost $6000 and at the date of sale accumulated depreciation was $1000.The amount of the unrealised gain on sale to be eliminated is:

A)$5600.
B)$1000.
C)$600.
D)$400.

Question 16

In May 2014,a parent sold inventory to a subsidiary entity for $60 000.The inventory had previously cost the parent entity $48 000.The entire inventory is still held by the subsidiary at reporting date,30 June 2014.Ignoring tax effects,which of the following is the adjustment entry in the consolidation worksheet at reporting date?

Question 17

During the year ended 30 June 2014,a subsidiary sold inventory to a parent for $90 000.The inventory had previously cost the subsidiary entity $72 000.By 30 June 2014 the parent had sold 75% of the inventory to a party outside the group.The remaining inventory was sold externally in July 2014.The company tax rate is 30%.Which of the following is the adjustment entry in the consolidation worksheet at 30 June 2015?

Question 18

A parent sold some inventory to its subsidiary for $55 000.The goods had originally cost the parent $40 000.At the end of the year all of the inventory was still on hand.The consolidation adjustment entry to eliminate this transaction will include the following line items?

A)Cr Cost of sales $15 000
B)Cr Cost of sales $40 000
C)Cr Cost of sales $95 000
D)Cr Cost of sales $55 000

Question 19

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)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 20

A subsidiary entity sold goods to its parent entity for $100 000.The inventory originally cost the subsidiary $125 000.At reporting date,the parent still held all of the inventory.Which of the following adjustments must be included as part of the consolidation entry to eliminate this transaction?

A)Cr Inventory $100 000
B)Cr Inventory $125 000
C)Dr Inventory $25 000
D)Dr Inventory $225 000

Question 21

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.

Question 22

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

Question 23

The effect of an intragroup sale of inventory in a prior period,where the inventory is still on hand at the end of the prior period but is sold in the current period,is that a credit adjustment is made to income tax expense in the subsequent period.

Question 24

The effect of an intragroup sale of inventory at a profit,where the inventory has been sold to external parties prior to the end of the reporting period,is that both profit and the inventory asset are overstated.

Question 25

On 16 May 2014,Zebra Ltd sold equipment to its subsidiary Nando Ltd for $100 000,this asset having a carrying amount at time of sale of $80 000.The equipment was regarded by Zebra Ltd as a depreciable non-current asset,being depreciated at 10% p.a.on cost,whereas Nando Ltd records the machinery as inventory.The asset was sold by Nando Ltd before 30 June 2014.The worksheet entry for the year ended 30 June 2014 would include which of the following adjustments?

A)Dr Cost of sales 20 000
B)Cr Cost of sales 20 000
C)Dr Inventory 20 000
D)Cr Inventory 20 000

Question 26

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

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

Question 27

The effect of an intragroup sale of inventory in a prior period,where the inventory is still on hand at the end of the current period,is that a credit adjustment is made to inventory in the current period.

Question 28

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.

Question 29

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.

Question 30

Which of the following items is an example of an intragroup service?

A)A subsidiary sells inventory to its parent entity.
B)An intragroup transfer of non-current assets results in an unrealised profit.
C)One entity in a group acquires a depreciable asset from another entity in the same group.
D)One entity in a group rents a building to another entity in the group.

Question 31

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?

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

Question 32

When a depreciable non-current asset is sold between entities within a group,any gain recognised on the sale is eliminated and realised through consolidation adjustments which result in increased depreciation expenses in future periods.

Question 33

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

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 34

During the year ended 30 June 2017,a parent entity rents a warehouse from a subsidiary entity for $200 000.The company tax rate is 30%.Which of the following is the consolidation adjustment entry needed at reporting date to eliminate the transaction?

Question 35

The effect of an intragroup sale of inventory in a prior period,where the inventory is still on hand at the end of that prior period,is that a debit consolidation adjustment is made to opening retained earnings.

Question 36

Where an intragroup sale of an asset at a profit has been made and the asset was classified as plant in the selling entity's books,but subsequently classified as inventory in the buying entity's books,a credit adjustment is required against cost of sales in the year of sale.

Question 37

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.

Question 38

Where there is an intragroup sale of inventory and the inventory has been sold to external parties prior to the end of the reporting period,no adjustment is required on consolidation.

Question 39

A consolidation worksheet adjustment to eliminate the effect of interest revenue and interest expense relating to intragroup loans has which of the following tax effects?

A)No tax effect
B)Increase in current tax liability
C)Increase in deferred tax liability
D)Decrease in deferred tax asset

Question 40

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.

Question 41

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.

Question 42

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.

Question 43

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

Question 44

Elimination consolidation entries relating to intragroup services do not need to be carried forward to future periods.

Question 45

Where a dividend is declared in a prior period and paid in a current period,the credit in the consolidation elimination entry is made against the dividend declared/paid account.

Question 46

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

Question 47

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.