Question 1

Unrealised gains and losses on intragroup sales of non-depreciable assets can only be realised by sales outside the group.

Accepted Answer

A) True 
 B)False  True

Question 2

A subsidiary that is 75% owned by its parent company pays a dividend of $100 000.On consolidation the amount to be eliminated is:

Accepted Answer

A)   $75 000.
B)   $100 000.
C)   $25 000.
D)   not eliminated. A

Question 3

S Ltd acquired land from its parent company P Ltd for $1 000 000.The land had originally cost P Ltd $100 000 (assume a tax rate of 30%).On consolidation,the deferred tax asset will be recorded at:

Accepted Answer

A)   $300 000.
B)   $30 000.
C)   $270 000.
D)   not recorded. A

Question 4

A loss arising from an intragroup transfer of inventories can be regarded as an unrealised loss that will be recovered by the group in a sale to an outside party.

Accepted Answer

A) True 
 B)False

Question 5

A loss on intragroup sales of inventory will be regarded as realised by the group at the time of the sale only if the transfer price represents the net realisable value of the inventories.

Accepted Answer

A) True 
 B)False

Question 6

When a depreciable asset is sold at a profit on an intragroup basis,a consolidation entry is required to recognise a deferred tax asset.

Accepted Answer

A) True 
 B)False

Question 7

Explain why temporary differences (and therefore deferred tax adjustments)arise when depreciable assets are sold at a profit on an intragroup basis.

Accepted Answer

The answer of Explain why temporary differences (and therefore deferred...

Question 8

Explain why cash will never be adjusted in consolidation journal entries.

Accepted Answer

The answer of Explain why cash will never be adjusted...

Question 9

A Ltd sells inventory to its parent P Ltd for $60 000 representing a mark-up of 50% on cost.At year-end,3/4 of the goods are still held by P Ltd.The unrealised profit to be eliminated on consolidation is:

Accepted Answer

A)   $20 000.
B)   $15 000.
C)   $30 000.
D)   $10 000.

Question 10

Current accounting regulations require the separate disclosures in profit or loss of gains and losses on disposal of non-current assets.

Accepted Answer

A) True 
 B)False

Question 11

Explain why some consolidation adjusting entries are required to be carried forward to future years.

Accepted Answer

The answer of Explain why some consolidation adjusting entries are...

Question 12

P Ltd provides management services to its subsidiary company S Ltd for $100 000 per year.At the end of the current year,S Ltd owes $20 000 of this fee.The entry required on consolidation is:

Accepted Answer

A)   Dr. Management Fee Revenue  $100,000\quad\quad\$ 100,000$100,000 Cr. Management Fee Expense  $100,000\quad\quad\$ 100,000$100,000 
B)   Dr. Management Fee Revenue  $100,000 \quad\quad\$ 100,000 $100,000 Cr. Management Fee Expense  $100,000\quad\quad \$ 100,000 $100,000 Dr. Accrued Fees Payable  $20,000 \quad\quad\quad\quad\$ 20,000 $20,000 Cr. Accrued Fees Receivable  $20,000 \quad\quad\quad \$ 20,000 $20,000 
C)   Dr. Management Fees Revenue  $80,000\quad\quad\$ 80,000$80,000 Cr. Management Fees Expense  $80,000\quad\quad\$ 80,000$80,000 
D)   none of the above

Question 13

Tax effect adjustments only apply to consolidation adjusting entries that affect the carrying amount of parent subsidiaries.

Accepted Answer

A) True 
 B)False

Question 14

In a periodic inventory system,cost of goods sold is the account credited when there is unrealised profit in closing inventories from a previous year.

Accepted Answer

A) True 
 B)False

Question 15

P Ltd acquired inventories for $150 000,which were sold to its subsidiary S Ltd for $120 000 (assume a tax rate of 30%).On consolidation,a deferred tax liability would be recorded for:

Accepted Answer

A)   $45 000.
B)   $36 000.
C)   $9000.
D)   not recorded.

Question 16

For non-current assets measured using the revaluation model,no consolidation adjustment is required for fair value increases or decreases.

Accepted Answer

A) True 
 B)False

Question 17

A consolidation adjustment will have a tax effect if:

Accepted Answer

A)   it adjusts the carrying amount of an asset.
B)   it adjusts the carrying amount of a liability.
C)   it recognises assets and liabilities not recorded in accounting records of group companies.
D)   all of the above.

Question 18

P Ltd sold an item of property,plant and equipment to its subsidiary S Ltd on the following basis: cost to P Ltd $24 000.The equipment is three years old and had been depreciated at 10% per annum straight line.Sale price was $20 000.The gain recorded by P Ltd on sale would be:

Accepted Answer

A)   $20 000.
B)   $4000.
C)   $3200.
D)   $0.

Question 19

Unrealised profits on the intragroup sale of inventory will only be eliminated on consolidation in the year in which they arise.

Accepted Answer

A) True 
 B)False

Question 20

Discuss the basis of recognition of tax effects relating to accrued revenue and expenses for such intragroup items as management fees and interest.

Accepted Answer

The answer of Discuss the basis of recognition of tax...

Exam 4: Intra-Group Transactions

Unrealised gains and losses on intragroup sales of non-depreciable assets can only be realised by sales outside the group.

A subsidiary that is 75% owned by its parent company pays a dividend of $100 000.On consolidation the amount to be eliminated is:

S Ltd acquired land from its parent company P Ltd for $1 000 000.The land had originally cost P Ltd $100 000 (assume a tax rate of 30%) .On consolidation,the deferred tax asset will be recorded at:

A loss arising from an intragroup transfer of inventories can be regarded as an unrealised loss that will be recovered by the group in a sale to an outside party.

A loss on intragroup sales of inventory will be regarded as realised by the group at the time of the sale only if the transfer price represents the net realisable value of the inventories.

When a depreciable asset is sold at a profit on an intragroup basis,a consolidation entry is required to recognise a deferred tax asset.

Explain why temporary differences (and therefore deferred tax adjustments)arise when depreciable assets are sold at a profit on an intragroup basis.

Explain why cash will never be adjusted in consolidation journal entries.

A Ltd sells inventory to its parent P Ltd for $60 000 representing a mark-up of 50% on cost.At year-end,3/4 of the goods are still held by P Ltd.The unrealised profit to be eliminated on consolidation is:

Current accounting regulations require the separate disclosures in profit or loss of gains and losses on disposal of non-current assets.

Explain why some consolidation adjusting entries are required to be carried forward to future years.

P Ltd provides management services to its subsidiary company S Ltd for $100 000 per year.At the end of the current year,S Ltd owes $20 000 of this fee.The entry required on consolidation is:

Tax effect adjustments only apply to consolidation adjusting entries that affect the carrying amount of parent subsidiaries.

In a periodic inventory system,cost of goods sold is the account credited when there is unrealised profit in closing inventories from a previous year.

P Ltd acquired inventories for $150 000,which were sold to its subsidiary S Ltd for $120 000 (assume a tax rate of 30%) .On consolidation,a deferred tax liability would be recorded for:

For non-current assets measured using the revaluation model,no consolidation adjustment is required for fair value increases or decreases.

A consolidation adjustment will have a tax effect if:

P Ltd sold an item of property,plant and equipment to its subsidiary S Ltd on the following basis: cost to P Ltd $24 000.The equipment is three years old and had been depreciated at 10% per annum straight line.Sale price was $20 000.The gain recorded by P Ltd on sale would be:

Unrealised profits on the intragroup sale of inventory will only be eliminated on consolidation in the year in which they arise.

Discuss the basis of recognition of tax effects relating to accrued revenue and expenses for such intragroup items as management fees and interest.