Deck 21: Further Consolidation Issues I: Accounting for Intragroup Transactions

Question 1

In the absence of an election to be a 'tax consolidated group',the taxation authorities typically assess income earned by individual legal entities in an economic group and does not take into consideration consolidation adjustments required for group accounts.

Answer 1

True

Question 2

Examples of intragroup transactions include:

A)dividends payable to group members.
B)the payment of taxation.
C)the recognition of minority interests.
D)the sale of inventories to external parties.

Answer 2

A

Question 3

IFRS 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation even where the parent entity holds only a fraction of the issued equity.

Answer 3

True

Question 4

IFRS 10 Consolidated Financial Statements prescribes that intragroup balances,transactions,income and expenses be eliminated in full on consolidation.This requirement is consistent with the parent entity concept of consolidation.

Question 5

Radio Ltd acquired all the issued capital of Wave Ltd on 1 July 2014 for cash consideration of $2 million.The fair value of the net assets of Wave Ltd at that date was $1.8 million as follows: $$\begin{array} { | l | r | } \hline \text { Share capital } & \$ 1000000 \\\hline \text { Retained earnings } & 800000 \\\hline \text { Total equity } & \$ 1800000 \\\hline\end{array}$$ During the period ending 30 June 2015,Wave Ltd declare a dividend of $300 000 that is identified as being paid out of pre-acquisition profits.Goodwill had been determined to have impaired by $20 000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2015?

A) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 1000000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \\\hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 2000000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Impairment loss } & 250000 & \\\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 250000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\\hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 300000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 1000000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 800000 & \\\hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1800000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Retained earnings } & 20000 & \\\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 20000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\\hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 1000000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 500000 & \\\hline \mathrm { Cr } & \text { Investment in Wave Ltd } & & 1500000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Impairment loss } & 20000 & \\\hline \mathrm { Cr } & \text { Retained earnings } & & 20000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend declared } & 300000 & \\\hline \mathrm { Cr } & \text { Dividend income } & & 300000 \\\hline\end{array}$$
D) $\begin{array}{|l|l|r|l|}\hline \mathrm{Dr} & \text { Share capital } & 1,000,000 & \\\hline \mathrm{Dr} & \text { Retained earnings } & 800,000 & \\\hline \mathrm{Dr} & \text { Goodwill } & 200,000 & \\\hline \mathrm{Cr} & \text { Investment in Wave Ltd } & & 200,0000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Impairment loss - goodwill } & 20,000 & \\\hline \mathrm{Cr} & \text { Accumulated impairment loss\_goodwill } & & 20,000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend payable } & 300,000 & \\\hline \mathrm{Cr} & \text { Dividend receivable } & & 300,000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend declared } & 300,000 & \\\hline \mathrm{Cr} & \text { Dividend income } & & 300,000 \\\hline\end{array}$

Question 6

If we simply aggregate the sales of the parent and subsidiary companies,without adjustment,when there have been intragroup sales,total income would be overstated.

Question 7

Intragroup profits are eliminated in consolidation to reduce consolidated profits.

Question 8

The fact that consolidation worksheets start 'afresh' each year means that the tax entry for eliminating unrealised profit in opening inventory requires a 'Dr' to deferred tax assets,rather than income tax expense.

Question 9

Transactions between entities that form an economic group should be eliminated in proportion to the level of control between the parent entity and the subsidiary entity.

Question 10

Monster Co Plc owns 100% of the issued shares of Mini Co Plc.Mini Co Ltd declared a dividend of €100 000 for the period ended 30 June 2014.Monster Co Plc accrues dividends when they are declared by its subsidiaries.What elimination entry would be required to prepare the consolidated financial statements for the group for the period ended 30 June 2015?

A) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Cash } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend declared } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend payable } & & 100000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend declared } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend income } & & 100000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend expense } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\\hline \mathrm { Cr } & \text { Cash } & & 100000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend payable } & 100,000 & \\\hline \mathrm { Cr } & \text { Dividend declared } & & 100,000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend income } & 100,000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 100,000 \\\hline\end{array}$$

Question 11

Stormy Ltd has purchased all the issued capital of Cloud Ltd at the beginning of the current period.At the end of the period Cloud Ltd declares a dividend of €50 000 that is identified as being paid out of pre-acquisition profits.What entries would Stormy Ltd and Cloud Ltd make in their own books? (Assume Stormy Ltd accrues the dividends of subsidiaries when they are declared.)

A) $\begin{array}{|c|l|r|r|}\hline \text { Stormy Ltd }\\\hline \mathrm{Dr} & \text { Dividend receivable } & 50,000 & \\\hline \mathrm{Cr} & \text { Dividend income } & & 50,000 \\\hline & & & \\\hline \text { Cloud Ltd }\\\hline \mathrm{Dr} & \text { Dividend declared } & 50,000 & \\\hline \mathrm{Cr} & \text { Dividend payable } & & 50,000\\\hline\end{array}$
B) $\begin{array}{|c|l|r|r|}\hline \text { Stormy Ltd }\\\hline \mathrm{Dr} & \text { Dividend receivable } & 50,000 & \\\hline \mathrm{Cr} & \text { Dividend income } & & 50,000 \\\hline & & & \\\hline \text { Cloud Ltd }\\\hline \mathrm{Dr} & \text { Pre-acquisition retained earnings } & 50,000 & \\\hline \mathrm{Cr} & \text { Dividend payable } & & 50,000\\\hline\end{array}$
C) $\begin{array}{|c|l|r|r|}\hline \text { Stormy Ltd }\\\hline \mathrm{Dr} & \text { Investment in Cloud Ltd } & 50,000 & \\\hline \mathrm{Cr} & \text { Dividend income } & & 50,000 \\\hline & & & \\\hline \text { Cloud Ltd }\\\hline \mathrm{Dr} & \text { Pre-acquisition retained earnings } & 50,000 & \\\hline \mathrm{Cr} & \text { Dividend payable } & & 50,000\\\hline\end{array}$
D) $\begin{array}{|l|l|r|r|}\hline \text { Stormy Ltd }\\\hline \mathrm{Dr} & \text { Dividend receivable } & 50,000 & \\\hline \mathrm{Cr} & \text { Dividend income } & & 50,000 \\\hline & & & \\\hline \text { Cloud Ltd }\\\hline \mathrm{Dr} & \text { Dividend declared } & 50000 & \\\hline \mathrm{Cr} & \text { Dividend payable } & & 50000 \\\hline\end{array}$

Question 12

The level of equity ownership is not a factor in deciding what proportion of a transaction between entities in a group should be eliminated.

Question 13

Dividends may be identified as being paid out of pre-acquisition or post-acquisition profits by a subsidiary company.Where dividends are paid out of post-acquisition profits the investment in the subsidiary should be decreased by the amount of the dividend.

Question 14

Intragroup profits are eliminated in consolidation to exclude intragroup transactions in the parent entity's financial statements.

Question 15

Parent Plc sells inventories to Child Plc amounting to €200 000 during the financial year.The inventories are no longer in the hands of Child Plc at year-end.Parent Plc is no longer required to eliminate these intragroup transactions because these transactions have been realised by sale to external parties.

Question 16

Intragroup transactions that are to be eliminated in the consolidated accounts include:

A)inter-entity loans.
B)inter-entity sales of non-current assets.
C)the payment of management fees to a member of the group.
D)all of the given answers.

Question 17

Little Company declared a dividend of €90 000 for the period ended 30 June 2014.Big Company owns 100% of the equity of Little Company.Big Company accrues dividends when they are declared by its subsidiaries.What elimination entry would be required to prepare the consolidated financial statements for the group for the period ended 30 June 2014?

A) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Cash } & 90000 & \\\hline \mathrm { Cr } & \text { Dividend declared } & & 90000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend receivable } & 90000 & \\\hline \mathrm { Cr } & \text { Cash } & & 90000 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend payable } & 90000 & \\\hline \mathrm { Cr } & \text { Dividend declared } & & 90000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend income } & 90000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 90000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend income } & 90000 & \\\hline \mathrm { Cr } & \text { Dividend expense } & & 90000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 90000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 90000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Dividend declared } & 90000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 90000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 90000 & \\\hline \mathrm { Cr } & \text { Dividend income } & & 90000 \\\hline\end{array}$$

Question 18

Forest Ltd purchased all the issued capital of Shrub Ltd on 1 July 2013 for cash consideration of $1 million.The fair value of Shrub Ltd's net assets at that date was $1 million made up of: $$\begin{array} { | l | r | } \hline \text { Share capital } & \$ 750000 \\\hline \text { Retained earnings } & 250000 \\\hline \text { Total equity } & \$ 1000000 \\\hline\end{array}$$ During the period ended 30 June 2014,Shrub Ltd declare a dividend of $100 000 out of pre-acquisition earnings.What consolidation journal entries would be required to prepare group accounts for the period?

A) $\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Dividend receivable } & 100000 & \\\hline \mathrm{Cr} & \text { Dividend declared } & & 100000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Share capital } & 750000 & \\\hline \mathrm{Dr} & \text { Retained earnings } & 250000 & \\\hline \mathrm{Cr} & \text { Investment in Shrub Ltd } & & 1000000 \\\hline\end{array}$
B) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 750000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\\hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend declared } & & 100000 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 750000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\\hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\\hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend income } & & 100000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Dividend income } & 100000 & \\\hline \mathrm { Cr } & \text { Retained earnings } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend receivable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend payable } & & 100000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Share capital } & 750000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 250000 & \\\hline \mathrm { Cr } & \text { Investment in Shrub Ltd } & & 1000000 \\\hline\end{array}$$

Question 19

The value of inventory on hand for the economic group at the end of the period will always equal the sum of the inventory on hand at the end of the period for each of the entities in the group.

Question 20

If a subsidiary makes a dividend payment out of pre-acquisition earnings,the parent entity should consider whether its investment in the subsidiary is impaired.

Question 21

Blue Plc sold inventory items (with a cost of £90 000)to its subsidiary Maroon Plc for £120 000.Half of the inventory items were sold by Maroon Plc to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

A)Consolidated sales will decrease by £60 000.
B)Consolidated sales will decrease by £100 000.
C)Consolidated profit will decrease by £15 000.
D)Consolidated profit will decrease by £20 000.

Question 22

A non-current asset was sold by Subsidiary Plc to Parent Plc during the 2013/14 financial year.The carrying amount of the asset at the time of the sale was £1 400 000.As part of the consolidation process,the following journal entry was passed. $$\begin{array} { | l | r | l | } \hline 30 \text { June } 2014 & & \\\hline \text { Dr Profit on sale of asset } & 400000 & \\\hline \text { Dr Asset } & 600000 & \\\hline \text { Cr Accumulated depreciation } & & 1000000 \\\hline\end{array}$$ What (a)amount did Parent Plc pay Subsidiary Plc for the asset; (b)was the cost of the asset as shown in the books of Subsidiary Plc?

A)(a) £1 800 000; (b) £1 400 000
B)(a) £1 800 000; (b) £1 600 000
C)(a) £1 400 000; (b) £2 400 000
D)(a) £1 800 000; (b) £2 400 000

Question 23

Tookey Plc sold inventory items (with a cost of £75 000)to its subsidiary Milky Plc for £135 000.A third of the inventory items were sold by Milky Plc to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

A)Consolidated sales will decrease by £75 000.
B)Consolidated sales will decrease by £95 000.
C)Consolidated profit will decrease by £60 000.
D)Consolidated profit will decrease by £40 000.

Question 24

French Plc owns 100% of the issued capital of Pastry Plc.During the period ended 30 June 2014,Pastry Plc sold inventory that cost €190 000 for €300 000 to French Plc.Sixty per cent of this inventory remains on hand in French Plc at the end of that year.Both companies use a perpetual inventory system.The taxation rate is 30%. What consolidation journal entries are required in relation to the inter-company transaction for the period ending 30 June 2015?

A) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Closing retained earnings } & 44000 & \\\hline \mathrm { Cr } & \text { Inventory } & & 44000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 13200 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 13200 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Opening retained earnings } & 66000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 66000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 19800 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 19800 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Sales } & 300000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 300000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 66000 & \\\hline \mathrm { Cr } & \text { Inventory } & & 66000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 19800 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 19800 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Sales } & 300000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 300000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 44000 & \\\hline \mathrm { Cr } & \text { Inventory } & & 44000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 13200 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 13200 \\\hline\end{array}$$

Question 25

Aladdin Plc sells inventory for a profit to its subsidiary Jasmine Plc to be used as machinery in Jasmine Plc's production process.The consolidation worksheet of Aladdin Plc with respect to this transaction only should ? not include:

A)a debit to sales.
B)a credit to cost of sales.
C)a credit to inventories.
D)a credit to machinery.

Question 26

What is the amount of unrealised profit that needs to be eliminated at the end of the period,in the following situation,where Morecombe Plc is the parent of Wise Plc? (Ignore the tax effect.)
Morecombe purchases 500 units of inventory for £20 each.Morecombe sells this entire inventory to Wise at a mark up of 25%.Wise then sells half of the inventory to an external party.Half of the remaining amount (after the external sale)is sold back to Morecombe for £2500.

A)cannot determine from the information given
B)£300
C)£625
D)£1250

Question 27

Woody Plc sold inventory items to its subsidiary Buzz Lightyear Plc and had the following intercompany transactions:
Cost of inventory €300 000 sold for €375 000 for the year ended 30 June 2012.One third of the inventory items were sold by Buzz Lightyear Plc to external parties before the financial year end 30 June 2012.
Cost of inventory €100 000 sold for €75 000 for the year ended 30 June 2013.Half of the inventory items were sold by Buzz Lightyear Plc to external parties before the financial year end 30 June 2013.
Ignoring taxes,which of the following statements is correct with respect to this transaction only for the year ended 30 June 2013

A)Consolidated sales will decrease by €100 000.
B)Consolidated sales will increase by €275 000.
C)Consolidated profit will increase by €62 500.
D)Consolidated profit will increase by €12 000.

Question 28

Zeus Plc owns 100% of the issued capital of Ares Plc.On 1 July 2015,Zeus Plc purchased an item of equipment from Ares Plc for €800 000.Ares had owned the equipment for 2 years.It originally cost €890 000 and the accumulated depreciation was €178 000 at the time of sale.The equipment has been depreciated over this time,but not written down or revalued.The remaining useful life of the equipment at 1 July 2015 is estimated to be 8 years.Zeus Plc expects the benefits to be obtained from the equipment to be evenly received over its useful life.The tax rate is 30%. What are the consolidation journal entries required for this inter-company transaction for the period ended 30 June 2016?

A) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Gain on sale of equipment } & 88000 & \\\hline \mathrm { Dr } & \text { Equipment } & 90000 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation-equipment } & & 178000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Cr } & \text { Income tax expense } & & 26400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 11000 & \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 11000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 3300 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Gain on sale of equipment } & 88000 & \\\hline \mathrm { Dr } & \text { Equipment } & 88000 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation-equipment } & & 176000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 26400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 11000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 11000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 3300 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Sales } & 270000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 270000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Cost of goods sold } & 17500 & \\\hline \mathrm { Cr } & \text { Purchases } & & 17500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 5250 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 5250 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 49000 & \\\hline \mathrm { Cr } & \text { Closing retained earnings } & & 49000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Purchases } & 29400 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 29400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 8820 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 8820 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Gain on sale of equipment } & 88000 & \\\hline \mathrm { Cr } & \text { Equipment } & & 88000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 26400 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 26400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Depreciation expense } & 12500 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation } & & 12500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3750 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 3750 \\\hline\end{array}$$

Question 29

Belgium Plc owns all the issued capital of Chocolate Plc.During the period ended 30 June 2015,Belgium Ltd sold Chocolate Plc inventory that had a cost of €200 000 for €270 000.At the end of the current period Chocolate Plc had 75% of that inventory still on hand; the rest was sold to entities external to the group.During the previous period Chocolate Ltd had sold inventory to Belgium Plc at a profit of €49 000.At the end of that period (30 June 2014)Belgium Plc still had 40% of that inventory on hand.That entire inventory was sold to parties external to the group during the current year.The taxation rate is 30% and both companies use a perpetual inventory system. What consolidation journal entries are required to eliminate the effects of these transactions for the period ended 30 June 2015?

A) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Sales } & 270000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 270000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Cost of goods sold } & 52500 & \\\hline \mathrm { Cr } & \text { Purchases } & & 52500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 17750 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 17750 \\\hline & & & \\\hline \mathrm { Dr } & \text { Inventory } & 19600 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 19600 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 5880 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 5880 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Sales } & 270000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 270000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Cost of goods sold } & 17500 & \\\hline \mathrm { Cr } & \text { Purchases } & & 17500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 5250 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 5250 \\\hline & & & \\\hline \mathrm { Dr } & \text { Purchases } & 29400 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 29400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 8820 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 8820 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Sales } & 270000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 270000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Cost of goods sold } & 17500 & \\\hline \mathrm { Cr } & \text { Purchases } & & 17500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 5250 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 5250 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 49000 & \\\hline \mathrm { Cr } & \text { Closing retained earnings } & & 49000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Purchases } & 29400 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 29400 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 8820 & \\\hline \mathrm { Cr } & \text { Deferred income tax asset } & & 8820 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \mathrm { Dr } & \text { Sales } & 270000 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 270000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Cost of goods sold } & 52500 & \\\hline \mathrm { Cr } & \text { Inventory } & & 52500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Deferred income tax asset } & 15750 & \\\hline \mathrm { Cr } & \text { Income tax expense } & & 15750 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 19600 & \\\hline \mathrm { Cr } & \text { Cost of goods sold } & & 19600 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 5880 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 5880 \\\hline\end{array}$$

Question 30

Companies A,B and C are all part of the one economic entity,but are all separate legal entities required to prepare their own financial statements.Company A sold Company B inventory that cost £56 000 for £78 000.At the end of the same period Company B has three-quarters of that inventory still on hand and the rest has been sold to an entity outside the economic group.At what amount should the inventory remaining in Company B be recorded in the consolidated statements?

A)£14 625
B)£56 000
C)£58 500
D)£42 000

Question 31

Alice Plc sold inventory items to its subsidiary Mad Hatter Plc and had the following intercompany transactions:
Cost of inventory €100 000 sold for €125 000 for the year ended 30 June 2012.Half of the inventory items were sold by Mad Hatter Plc to external parties before the financial year end 30 June 2012.
Cost of inventory €75 000 sold for €100 000 for the year ended 30 June 2013.Half of the inventory items were sold by Mad Hatter Plc to external parties before the financial year end 30 June 2013.
Ignoring taxes,which of the following statements is correct with respect to this transaction only for the year ended 30 June 2013?

A)Consolidated sales will decrease by €125 000.
B)Consolidated sales will increase by €25 000.
C)Consolidated profit will decrease by €12 500.
D)There will be no change in the consolidated profit.

Question 32

Large Company owns 80% of the issued capital of Smaller Company and Large Company owns 60% of the issued capital of Medium Company.The three companies form an economic entity for the purposes of consolidated accounts.During the period Smaller Company sold inventory to Medium for £400 000.Medium sold the same inventory to Large for £560 000 and Large sold it to an entity external to the group for £760 000.What are the sales revenue reported in the consolidated statements for this item?

A)£1 416 000
B)£1 720 000
C)£760 000
D)£400 000

Question 33

Penny Plc sells inventory items to its subsidiary Bolt Plc.If during the financial year 2013,the unrealised profits in ending inventory in Bolt Plc is less than its unrealised profits in beginning inventory,which of the following statements is correct with respect to Penny Plc's consolidated financial statements after considering these transactions only?

A)Consolidated profit will increase.
B)Consolidated deferred tax liability will increase.
C)Consolidated ending inventory will decrease.
D)Consolidated sales will be unaffected.

Question 34

The journal entries to eliminate unrealised profit in closing inventory at 30 June 2014 were as follows: $$\begin{array} { | l | r | r | } \hline 30 \text { June } 2014 & & \\\hline \text { Dr Cost of goods sold } & 50000 & \\\hline \text { Cr lnventory } & & 50000 \\\hline & & \\\hline \text { Dr Deferred tax asset } & 15000 & \\\hline \text { Cr Income tax expense } & & 15000 \\\hline\end{array}$$ What are the journal entries to eliminate the unrealised profits in opening inventory the following period?

A) $\begin{array}{|l|r|l|}\hline 1 \text { July } 2014 & & \\\hline \text { Dr Cost of goods sold } & 50000 & \\\hline \text { Cr Inventory } & & 50000 \\\hline & & \\\hline \text { Dr Deferred tax asset } & 15000 & \\\hline \text { Cr Income tax expense } & & 15000 \\\hline\end{array}$
B) $\begin{array}{|l|r|l|}\hline 1 \text { July } 2014 & & \\\hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\\hline \text { Cr Cost of goods sold } & & 50000 \\\hline & & \\\hline \text { Dr Deferred tax asset } & 15000 & \\\hline \text { Cr Opening retained earnings (1 July 2014) } & & 15000 \\\hline\end{array}$
C) $$\begin{array} { | l | r | r | } \hline \text { 1 July } 2014 & & \\\hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\\hline \text { Cr lnventory } & & 50000 \\\hline & & \\\hline \text { Dr Deferred tax asset } & 15000 & \\\hline \text { Dr Opening retained earnings (1 July 2014) } & & 15000 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { 1 July } 2014 & & \\\hline \text { Dr Opening retained earnings (1 July 2014) } & 50000 & \\\hline \text { Cr Cost of goods sold } & & 50000 \\\hline \\\hline \text { Dr Income tax expense } & 15000 \\\hline \text { Cr Opening retained earnings (1 July 2014) } && 15000 \\\hline\end{array}$$

Question 35

Zeus Plc owns 100% of the issued capital of Ares Plc.On 1 July 2012,Zeus Plc purchased an item of equipment from Ares Plc for €800 000.Ares had owned the equipment for 2 years.It originally cost €890 000 and the accumulated depreciation was €178 000 at the time of sale.The equipment has been depreciated over this time,but not written down or revalued.The remaining useful life of the equipment at 1 July 2012 is estimated to be 8 years.Zeus Plc expects the benefits to be obtained from the equipment to be evenly received over its useful life.The tax rate is 30%. What are the consolidation journal entries required for this inter-company transaction for the period ended 30 June 2014?

A) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Opening retained earnings } & 88000 & \\\hline \mathrm { Cr } & \text { Equipment } & & 88000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 22000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Income tax expense } & 6600 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\\hline\end{array}$$
B) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Equipment } & 88000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 88000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 25000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 12500 \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 12500 \\\hline & & & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 3300 & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 6600 \\\hline\end{array}$$
C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Opening retained earnings } & 61600 & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Dr } & \text { Equipment } & 90000 & \\\hline \mathrm { Cr } & \text { Accumulated depreciation-equipment } & & 178000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\\hline \mathrm { Cr } & \text { Opening retained earnings } & & 11000 \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 11000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Opening retained earnings } & 61600 & \\\hline \mathrm { Dr } & \text { Deferred tax asset } & 26400 & \\\hline \mathrm { Cr } & \text { Equipment } & & 88000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Accumulated depreciation } & 22000 & \\\hline \mathrm { Cr } & \text { Depreciation expense } & & 22000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Opening retained earnings } & 3300 & \\\hline \mathrm { Dr } & \text { Income tax expense } & 3300 & \\\hline \mathrm { Cr } & \text { Deferred tax asset } & & 6600 \\\hline\end{array}$$

Question 36

Aladdin Plc sold inventory items (with a cost of £100 000)to its subsidiary Genie Plc for £120 000.Half of the inventory items were sold by Genie Plc to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

A)Consolidated sales will decrease by £60 000.
B)Consolidated sales will decrease by £100 000.
C)Consolidated profit will decrease by £10 000.
D)Consolidated profit will decrease by £20 000.

Question 37

Companies A,B and C are all part of the one economic entity,but are all separate legal entities required to prepare their own financial statements.Company A sold Company B's inventory that cost £56 000 for £78 000.At the end of the same period Company B has three-quarters of that inventory still on hand and the rest has been sold to an entity outside the economic group.At what amount should the inventory remaining in Company B be recorded in Company B's own financial statements?

A)£42 000
B)£58 500
C)£56 000
D)£14 625

Question 38

Hammer Ltd acquired all the issued capital of Nail Ltd on 1 July 2015 for cash consideration of $1.5 million.The fair value of the net assets of Nail Ltd at that date was $1.2 million as follows: $\begin{array}{|l|r|}\hline \text { Share capital } & \$ 1000000 \\\hline \text { Retained earnings } & 200000 \\\hline \text { Total equity } & \$ 1200000 \\\hline\end{array}$ During the period ended 30 June 2016,Nail Ltd declared a dividend of $200 000 that is identified as being paid out of pre-acquisition profits and a further $100 000 is declared at the end of the period that is out of post-acquisition profits.Goodwill had been determined to have been impaired by $15 000 during the period.What consolidation journal entries would be required to prepare group accounts for the period ended 30 June 2016?

A) $\begin{array}{|l|l|r|l|}\hline \text { Dr } & \text { Share capital } & 1000000 & \\\hline \text { Dr } & \text { Goodwill } & 300000 & \\\hline \mathrm{Cr} & \text { Investment in Nail Ltd } & & 1300000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Impairment loss } & 15000 & \\\hline \mathrm{Cr} & \text { Accumulated impairment loss } & & 15000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend payable } & 200000 & \\\hline \mathrm{Cr} & \text { Dividend receivable } & & 200000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend income } & 100000 & \\\hline \mathrm{Cr} & \text { Dividend receivable } & & 100000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend payable } & 100000 & \\\hline \mathrm{Cr} & \text { Dividend declared } & & 100000 \\\hline\end{array}$
B) $\begin{array}{|l|l|r|l|}\hline \mathrm{Dr} & \text { Share capital } & 1000000 & \\\hline \mathrm{Dr} & \text { Retained earnings } & 200000 & \\\hline \mathrm{Dr} & \text { Goodwill } & 300000 & \\\hline \mathrm{Cr} & \text { Investment in Nail Ltd } & & 1520000\\\hline\\ \hline \mathrm{Dr} & \text { Impairment loss -goodwill } & 15000 & \\\hline \mathrm{Cr} & \text { Accumulated impairment loss- goodwill } & & 15000 \\\hline\\\hline \mathrm{Dr} & \text { Impairment loss-goodwill } & 15000 & \\\hline \mathrm{Cr} & \text { Accumulated impairment loss-goodwill } & & 15000 \\\hline \\\hline \mathrm{Dr} & \text { Dividend payable } & 200000 & \\\hline \mathrm{Cr} & \text { Dividend receivable } & & 200000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend income } & 200000 & \\\hline \mathrm{Cr} & \text { Dividend declared } & & 200000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend payable } & 100000 & \\\hline \mathrm{Cr} & \text { Dividend receivable } & & 100000 \\\hline & & & \\\hline \mathrm{Dr} & \text { Dividend income } & 100000 & \\\hline \mathrm{Cr} & \text { Dividend declared }&& 100000 \\\hline \end{array}$

C) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 1000000 & \\\hline \mathrm { Dr } & \text { Retained earnings } & 100000 & \\\hline \mathrm { Dr } & \text { Goodwill } & 400000 & \\\hline \mathrm { Cr } & \text { Investment in Nail Ltd } & & 1500000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Impairment loss } & 20000 & \\\hline \mathrm { Cr } & \text { Accumulated impairment loss } & & 20000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 200000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 200000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 100000 \\\hline\end{array}$$
D) $$\begin{array} { | c | l | r | r | } \hline \text { Dr } & \text { Share capital } & 1000000 & \\\hline \mathrm { Dr } & \text { Goodwill } & 500000 & \\\hline \mathrm { Cr } & \text { Investment in Nail Ltd } & & 1500000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Goodwill impairment (expense) } & 15000 & \\\hline \mathrm { Cr } & \text { Goodwill } & & 15000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend payable } & 300000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 300000 \\\hline & & & \\\hline \mathrm { Dr } & \text { Dividend income } & 100000 & \\\hline \mathrm { Cr } & \text { Dividend receivable } & & 100000 \\\hline\end{array}$$

Question 39

Apple Plc owns all the issued capital of Pear Plc.On 1 July 2014,Pear Plc purchased an item of plant from Apple Plc for £1 000 000.Apple Plc had owned the plant for 5 years.It originally cost £1 350 000 and the accumulated depreciation at 1 July 2004 is £562 500.The remaining useful life of the equipment on the date of sale to Pear Ltd is estimated to be 7 years.The pattern of benefits is expected to be obtained from the equipment evenly over its useful life.The tax rate is 30%.Round all calculations to the nearest dollar. What are the consolidation journal entries required for this inter-company transaction for the periods ended 30 June 2015 and 30 June 2016?

A) $\begin{array}{|l|l|r|l|}\hline {\text { Period ended } 30 \text { June 2015: }} & & \\\hline & & \\\hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\\hline \mathrm{Cr} & \text { Plant } & & 212500 \\\hline & & \\\hline \mathrm{Dr} & \text { Deferred tax asset } & 63750& \\\hline \mathrm{Cr} & \text { Income tax expense } & & 63750 \\\hline\\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 30357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 30357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Income tax expense } & 9107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } & & 9107 \\\hline\\\hline \text { Period ended 30 June } 2016& & & \\ \hline\\\hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\\hline \mathrm{Dr} & \text { Plant } & 350000 & \\\hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 498750 \\\hline & & & \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 70339 & \\\hline \mathrm{Cr} & \text { Opening retained earnings } & & 39982 \\\hline \mathrm{Cr} & \text { Depreciation expense } & &30357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Opening retained earnings } & & 9107 \\\hline \mathrm{Dr} & \text { Income tax expense } & & 9107 \\\hline\end{array}$

B) $\text { Period ended } 30 \text { June } 2015 \text { : }$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\\hline \mathrm{Dr} & \text { Plant } & 350000 & \\\hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 562500 \\\hline\\\hline \mathrm{Dr} & \text { Deferred tax asset } & 63750 & \\\hline \mathrm{Cr} & \text { Income tax expense } & & 63750 \\\hline & & & \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 30357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 3035 \\\hline\\\hline \text { Dr } & \text { Income tax expense } & 9107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } & & 910\\\hline\end{array}$

$\text { Period ended } 30 \text { June } 2016 \text { : }$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\\hline \mathrm{Dr} & \text { Deferred tax asset } & 63750 & \\\hline \mathrm{Dr} & \text { Plant } & 350000 & \\\hline \mathrm{Cr} & \text { Accumulated depreciation - plant } & & 562500 \\\hline\\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 60714 & \\\hline \mathrm{Cr} & \text { Opening retained earnings } & & 30357 \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 30357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Opening retained earnings } & 9107 & \\\hline \mathrm{Dr} & \text { Income tax expense } & 9107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } && 18214 \\\hline\end{array}$

C) $\begin{array}{|c|l|r|r}\hline \text { Period ended 30 June 2015: } & & \\\hline \mathrm{Dr} & \text { Gain on sale } & 212500 & \\\hline \mathrm{Cr} & \text { Plant } & & 212500 \\\hline & & & \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } & 80357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 80357 \\\hline\\\hline \mathrm{Dr} & \text { Income tax expense } & 24107 & \\\hline \mathrm{Cr} & \text { Deferred tax asset } & & 24107 \\\hline\end{array}$

$\text { Period ended } 30 \text { June } 2016 \text { : }$
$\begin{array}{|l|l|r|r|}\hline \mathrm{Dr} & \text { Opening retained earnings } & 148750 & \\\hline \mathrm{Cr} & \text { Plant } & & 148750 \\\hline \mathrm{Dr} & \text { Accumulated depreciation - plant } &80357 & \\\hline \mathrm{Cr} & \text { Depreciation expense } & & 80357 \\\hline & & & \\\hline \mathrm{Dr} & \text { Income tax expense } & 24107 & \\ \hline \mathrm{Cr} & \text { Deferred tax asset } & & 24107 \\\hline\end{array}$

D)

Question 40

Lilo Plc sells inventory items to its subsidiary Stitch Plc.If during the financial year 2013,the unrealised profits in ending inventory in Stitch Plc exceeds that of its unrealised profits in beginning inventory,which of the following statements is correct with respect to Lilo Plc's consolidated financial statements after considering these transactions only?

A)Consolidated profit will decrease.
B)Consolidated deferred tax liability will increase.
C)Consolidated ending inventory will decrease.
D)Consolidated sales will be unaffected.

Question 41

Detail at least five types of intragroup transactions that require elimination adjustments to be made in the consolidated accounts

Question 42

Explain the accounting treatment for impairment to the subsidiary investment when dividends have been paid out of pre-acquisition profits.

Question 43

Explain,with examples and the assumptions made,why it is necessary to pass consolidation journal entries to adjust for unrealised profits existing in opening inventory.

Question 44

Explain,with examples,the difference between dividend payments out of pre-acquisition profits and dividend payments out of post-acquisition profits,and the manner in which they are accounted for in consolidation accounting.

Question 45

Explain why gains recognised on sale of assets between entities within a group are reversed on consolidation.

Question 46

Discuss the reasoning behind the elimination all dividends receivable/payable between entities within the group during the consolidation process.