Deck 28: Consolidation: Intragroup Transactions

Question 1

When an entity sells during the current period a non-depreciable non-current asset at a profit to another entity within the same group the following adjustment is necessary on consolidation at the end of the period:

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 1

C

Question 2

The adjustments included in the consolidation worksheet are:

A) business combination valuation entries
B) pre-acquisition entries
C) elimination of the effects of intragroup transactions
D) all the options are correct.

Answer 2

A

Question 3

In May 2017, a parent entity sold inventories to a subsidiary entity for $30 000. The inventories had previously cost the parent entity $24 000. The entire inventories are still held by the subsidiary at reporting date, 30 June 2017. Ignoring tax effects, the adjustment entry in the consolidation worksheet at reporting date is:

A)
B)
C)
D)

Answer 3

D

Question 4

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:

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

Question 5

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 75% of 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:

A)
B)
C)
D)

Question 6

Which of the following statements is incorrect:

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 7

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:

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

Question 8

The tax effect of eliminating the unrealised profit from an intragroup sale of inventories and adjusting the value of the inventories on hand is recognised as:

A) an increase in deferred tax liability.
B) a decrease in deferred tax liability.
C) an increase in deferred tax asset.
D) an increase in income tax expense.

Question 9

Which of the following statements is incorrect:

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 10

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:

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 11

Which of the following questions is not a key question to consider when determining the appropriate consolidation adjustment entries:

A) Does the transaction involve the parent entity selling assets to the subsidiary, or the subsidiary selling assets to the parent entity?
B) What is the tax effect of the adjustments made?
C) What has been recorded by the legal entities?
D) Is this a prior period or a current period transaction?

Question 12

AASB 10 Consolidated Financial Statements, requires that the effect of 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 13

Which of the following statements is incorrect:

A) consolidated profit arises only in relation to transactions with entities external to the group.
B) consolidated assets are recorded at the cost to the legal entity that owns them.
C) consolidated liabilities are obligations to entities external to the group.
D) consolidated revenues are earned only from transactions with entities external to the group.

Question 14

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:

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

Question 15

A parent entity group sold a depreciable non-current asset to a subsidiary entity for $2 800. The asset originally cost $3 000 when acquired from an external party and at the date of intragroup sale the accumulated depreciation was $500. The amount of the unrealised gain on the intragroup sale to be eliminated is:

A) $2 800.
B) $500.
C) $300.
D) $200.

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 2017 will result in:

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 17

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:

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

Question 18

Jameson purchased goods from its subsidiary for $10 000. The goods cost the subsidiary $6 000. 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 19

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

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 20

During the current period, a subsidiary entity sold inventories to a parent entity for $30 000. The inventories had previously cost the subsidiary entity $24 000. By reporting date the parent entity had sold 75% of inventories to a party outside the group. The company tax rate is 30%. The adjustment entry in the consolidation worksheet at reporting date is:

A)
B)
C)
D)

Question 21

When eliminating an intragroup service which of the followings 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 22

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

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 23

Which of the following statements is incorrect:

A) Adjustments for previous periods' intragroup services affect only statement of financial position accounts, but only if the fees have not been paid.
B) Adjustments for current period intragroup services affect statement of profit or loss and other comprehensive income accounts and statement of financial position accounts if the fees have not been paid and only statement of profit or loss and other comprehensive income accounts otherwise.
C) It is necessary to have a tax-effect adjustment when adjusting for intragroup services.
D) Profits/losses on intragroup services are immediately realised to the group.

Question 24

A parent entity made an advance of $50 000 to its subsidiary. The parent charges interest of $3 000 on this advance. The consolidation adjustment to eliminate the advance is:

A) Dr Interest revenue $53 000 Cr Interest expense $53 000
B) Dr Interest expense $53 000 Cr Interest revenue $53 000
C) Dr Advance to subsidiary $50 000 Cr Advance from parent $50 000
D) Dr Advance from parent $50 000 Cr Advance to subsidiary $50 000

Question 25

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

Question 26

With regards to services provided within the group:

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 27

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:

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 28

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 29

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 30

Which of the following statements is incorrect:

A) Adjustments for the gain/loss on intragroup sale of property, plant and equipment are made in all periods after the sale.
B) Where the transferred assets are depreciable, adjustments are made to depreciation accounts (for the current period depreciation) or to the retained earnings account (for the previous periods' depreciation).
C) As depreciation reflects the use of the asset by the group, the depreciation adjustments are considered to be realising a part of the gain/loss on the intragroup sale of property, plant and equipment.
D) As the intragroup sale of property, plant and equipment impacts on the profit and the carrying amount of assets, adjustments for the tax effects are also required.

Question 31

The consolidation adjustments in relation to intragroup borrowings:

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 32

Winter Limited paid during the period an interim dividend of $5 000 to its parent entity. If the tax rate is 30%, what would be the adjustment made in the consolidation entry to record the tax effect of this transaction at the end of the period?

A) No tax effect entry required.
B) Dr Deferred Tax Asset $1 500.
C) Dr Income Tax Expense $1 500.
D) Cr Deferred Tax Liability $1 500.

Question 33

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:

A)
B)
C)
D)

Question 34

Janus Limited, a subsidiary entity, sold during the current period 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 35

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:

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

Question 36

A Ltd sells to its subsidiary, J Ltd, an item of inventories on 1 January 2017 for $6 000. The item cost A Ltd $3 000 earlier in the current year. J Ltd intends to use the item as plant with a useful life of 10 years, and no estimated salvage value. A straight-line depreciation rate of 10% p.a. is applicable. The tax rate is 30%. The worksheet entry for the year ended 30 June 2017 would include the following adjustment:

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

Question 37

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:

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 38

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:

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

Question 39

The changes in accounting standards since year 2008 require:

A) dividends from pre-acquisition equity to be accounted for by the parent as a return on investment in the subsidiary.
B) dividends from post-acquisition equity to be accounted for by the parent as revenue.
C) all dividends from a subsidiary to be accounted for by the parent as a return on investment in the subsidiary.
D) all dividends from a subsidiary to be accounted for by the parent as revenue.

Question 40

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:

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