Tutorial Week 7 Moodle Questions and Solutions
Chapter 17 Consolidated financial statements: intragroup
transactions
REVIEW QUESTIONS
2. In making consolidation worksheet adjustments, sometimes tax-effect entries are
made. Why?
Accounting for tax is governed by AASB 112 Income Tax. Deferred tax accounts are
raised when a temporary difference arises because the tax base of an asset or liability
differs from the carrying amount. Some consolidation adjustments result in changing the
carrying amounts of assets and liabilities. Where this occurs a temporary difference arises
as there is no change to the tax base. In these situations, tax-effect entries, require the
raising of deferred tax assets and liabilities, are necessary.
Consider an example of an item of inventory carried at cost of $10 000 being sold by a
parent to a subsidiary for $12 000, the inventory still being on hand at the end of the
period. The tax rate is 30%.
In the consolidation worksheet there is a credit adjustment to inventory of $2 000 as the
cost to the economic entity differs from that to the subsidiary. In the subsidiarys
accounts, the inventory is carried at $12 000 and has a tax base of $12 000, giving rise to
no temporary differences. From the groups point of view, the asset has a carrying amount
of $10 000, giving a temporary difference of $2 000. As the expected future deduction is
greater than the assessable amount, a deferred tax asset exists for the group.
This has no effect on the amount of tax payable in the current period.
3. Why is it important to identify transactions as current or prior period transactions?
Current period transactions affect different accounts than prior period transactions. For
example, current period sales of inventory affect sales and cost of sales accounts, whereas
prior period sales of inventory affect retained earnings. If the transactions are not correctly
placed into a time context, then the adjustments used for those transactions may be
inappropriate.
4. Where an intragroup transaction involves a depreciable asset, why is depreciation
expense adjusted?
The cost of the asset to the group is different from that recorded by the acquirer of the
depreciable asset within an intragroup transaction. The acquirer records depreciation on
the cost to the acquirer while in the consolidated financial statements, the group wants to
show depreciation calculated on cost to the group. Hence an adjustment is necessary.
If a profit is made on an intragroup sale of a depreciable asset, then the cost of the asset to
the group is less than the cost recorded by the acquirer of the asset. Hence an adjustment
is necessary to reduce the depreciation expense and accumulated depreciation in relation
to the asset.
Tutorial Week 7 Moodle Questions and Solutions
6. What is meant by realisation of profits?
Profit is realised when an entity or an economic entity transacts with another external
entity. For a group or economic entity this is consistent with the concept that the
consolidated financial statements show only the results of transactions with external
entities. The consolidated statement of profit or loss and other comprehensive income will
thus show only realised profits. Profits recognised by group members on sale of assets
within the group are unrealised profits.
With transferred inventory involvement of an external party, or realisation, occurs when
the inventory is on-sold to an external entity.
With transferred depreciable assets, realisation occurs as the asset is used up, as the
benefits are received by the group as a result of use of the asset. The proportion of profits
realised in any one period is measured by reference to the depreciation charged on the
transferred asset.
Profits recorded from intragroup services are considered to be immediately realised.
PRACTICE QUESTIONS
QUESTION 17.1
LAYLA LTD ISABEL LTD
(a)
(b)
(c)
Sales revenue
Cost of sales
Inventory
Dr
Cr
Cr
50 000
Deferred tax asset
Income tax expense
Dr
Cr
750
Retained earnings (1/7/12)
Deferred tax asset
Warehouse
Dr
Dr
Cr
12 600
5 400
Accumulated depreciation
Depreciation expense
Retained earnings (1/7/12)
Dr
Cr
Cr
1 350
Income tax expense
Retained earnings (1/7/12)
Deferred tax asset
Dr
Dr
Cr
270
135
Sales revenue
Cost of sales
Inventory
Dr
Cr
Cr
18 000
Deferred tax asset
Income tax expense
Dr
Cr
600
47 500
2 500
750
18 000
900
450
405
16 000
2 000
600
Tutorial Week 7 Moodle Questions and Solutions
(d)
(e)
(f)
(g)
Retained earnings (1/7/12)
Income tax expense
Sales revenue
Cost of sales
Inventory
Dr
Dr
Dr
Cr
Cr
1 400
600
3 000
Deferred tax asset
Income tax expense
Dr
Cr
150
Dividend payable
Dividend declared
Dr
Cr
5 000
Dividend revenue
Dividend receivable
Dr
Cr
5 000
Debentures
Debentures in Layla Ltd
Dr
Cr
40 000
Interest revenue
Interest expense
(15% x $40 000 x )
Dr
Cr
4 500
Interest payable
Interest receivable
(15% x $40 000 x )
Dr
Cr
1 500
Retained earnings (1/7/11)
Income tax expense
Cost of sales
Dr
Dr
Cr
700
300
4 500
500
150
5 000
5 000
40 000
4 500
1 500
1 000
Tutorial Week 7 Moodle Questions and Solutions
QUESTION 17.8
SUMMER LTD KEIRA LTD
At 1 July 2010:
Net fair value of identifiable assets
and liabilities of Keira Ltd
Consideration transferred
Goodwill
=
=
=
$44 000 + $4 000 (equity)
+ $3 000 (1 30%) (inventory)
+ $10 000 (1 30%) (land)
+ $2 000 (1 30%) (machinery)
$58 500
$60 000
$1 500
1. Business combination valuation entries
Accumulated depreciation
Machinery
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
Cr
20 000
Depreciation expense
Retained earnings (1/7/11)
Accumulated depreciation
Dr
Dr
Cr
400
400
Deferred tax liability
Income tax expense
Retained earnings (1/7/11)
Dr
Cr
Cr
240
Dr
Cr
1 500
Dr
Dr
Dr
Cr
4 000
44 000
12 000
Dr
Dr
Dr
Cr
13 100
44 000
2 900
Goodwill
Business combination valuation reserve
18 000
600
1 400
800
120
120
1 500
2. Pre-acquisition entries
At 1/7/10:
Retained earnings (1/7/10)
Share capital
Business combination valuation reserve
Shares in Keira Ltd
60 000
At 30/6/12:
Retained earnings (1/7/11)*
Share capital
Business combination valuation reserve
Shares in Keira Ltd
60 000
(* = $4000 + $2 100 + $7 000)
Tutorial Week 7 Moodle Questions and Solutions
3. Sales and profit in closing inventory
Sales revenue
Cost of sales
Inventory
Dr
Cr
Cr
17 000
Deferred tax asset
Income tax expense
Dr
Cr
60
Dr
Dr
Cr
280
120
Proceeds on sale of machinery
Carrying amount of machinery sold
Machinery
Dr
Cr
Cr
10 000
Deferred tax asset
Income tax expense
Dr
Cr
150
Accumulated Depreciation - machinery
Depreciation expense
Dr
Cr
50
Income tax expense
Deferred tax asset
Dr
Cr
15
Machinery
Retained earnings (1/7/11)
Deferred tax liability
Dr
Cr
Cr
500
Depreciation expense
Retained earnings (1/7/11)
Accumulated Depreciation
Dr
Dr
Cr
50
25
Deferred tax liability
Income tax expense
Retained earnings (1/7/11)
Dr
Cr
Cr
23
Proceeds on sale of machinery
Carrying amount of machinery sold
Inventory
Dr
Cr
Cr
6 000
Deferred tax asset
Income tax expense
Dr
Cr
300
16 800
200
60
4. Profit in opening inventory
Retained earnings (1/7/11)
Income tax expense
Cost of sales
400
5. Sale of machinery - current period
9 500
500
150
50
15
6. Sale of Machinery: prior period
350
150
75
15
8
7. Sale of plant to inventory
5 000
1 000
300
Tutorial Week 7 Moodle Questions and Solutions
Summer
Ltd
43 000
20 600
Keira
Ltd
52 000
30 900
3 200
5 300
1 200
6 000
2 700
2 600
30 300
12 700
6 000
42 200
9 800
10 000
5 000
9 500
1 000
500
--
13 700
7 400
10 300
4 700
22 300
11 590
Profit
Retained earnings
(1/7/11)
6 300
32 000
5 600
21 000
Retained earnings
(30/6/12)
Share capital
BCVR
38 300
26 600
64 000
--
44 000
--
102 300
70 600
114 383
21 400
-
17 000
-
38 400
487
21 400
123 700
17 000
87 600
Sales revenue
Cost of sales
Selling expenses
Admin expenses
Depreciation
Profit from trading
Proceeds from sale of
machinery
Carrying amount of
machinery sold
Gain/loss on sale of
machinery
Profit before tax
Tax expense
Total equity
Current liabilities
Deferred tax liability
Total liabilities
Total equity and
liabilities
1
6
5
7
Adjustments
Dr
Cr
17 000
16 800
400
400
50
50
Group
3
4
78 000
34 300
9 200
8 000
4 200
55700
22 300
-
10 000
6 000
9 500
5 000
5
7
4
5
120
15
120
60
150
15
300
1
3
5
6
7
1
2
4
6
400
13 100
280
25
120
350
8
1
6
6
10 710
39 673
50 383
2
2
1
6
44 000
2 900
240
23
1 400
1 500
600
150
1
1
1
6
64 000
--
38 887
153 270
Tutorial Week 7 Moodle Questions and Solutions
Machinery
Accumulated
depreciation
Inventory
Shares in Keira Ltd
Receivables
Deferred tax asset
Plant (net)
Goodwill
Total assets
Summer
Ltd
38 000
Keira
Ltd
71 500
(12 200)
(22 300)
19 000
16 400
60 000
5 500
5 400
8 300
6 300
8 000
123 700
7 400
87 600
6
1
5
Adjustments
Dr
Cr
500
18 000
500
20 000
800
50
75
200
1 000
60 000
3
5
7
60
150
300
1 500
117 113
15
Group
91 500
1
5
1
6
3
7
2
(15 325)
34 200
-13 800
12 195
15 400
1 500
153 270
117 113
Tutorial Week 7 Moodle Questions and Solutions
QUESTION 17.14
MONIQUE LTD MADELEINE LTD
At 1 July 2011:
Net fair value of identifiable assets
and liabilities of Madaleine Ltd
Consideration transferred
Goodwill
=
=
=
$80 000 + $16 000 + $21 000 (equity)
+ $1 000 (1 30%) (vehicles)
+ $8 000 (1 30%) (furniture)
+ $6 000 (1 30%) (land)
+ $6 000 (1 30%) (inventory)
$131 700
$137 200
$5 500
The subsidiary would pass the following entry:
Land
Deferred tax liability
Asset revaluation surplus
Dr
Cr
Cr
6 000
1 800
4 200
1.
Business combination valuation entries
At 1 July 2011:
Accumulated depreciation -vehicles
Motor vehicles
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
Cr
3 000
Accumulated depreciation - F&F
Furniture & fittings
Deferred tax liability
Business combination valuation reserve
Dr
Dr
Cr
Cr
6 000
2 000
Goodwill
Business combination valuation reserve
Dr
Cr
5 500
Inventory
Deferred tax liability
Business combination valuation reserve
Dr
Cr
Cr
5 900
2 000
300
700
2 400
5 600
5 500
1 770
4 130
Tutorial Week 7 Moodle Questions and Solutions
At 30 June 2013:
Depreciation expense motor vehicles
Carrying amount of non-current assets sold
Income tax expense
Retained earnings (1/7/12)
Transfer from business combination
valuation reserve
Dr
Dr
Cr
Dr
Cr
125
625
Accumulated depreciation - F&F
Furniture & fittings
Deferred tax liability
Business combination valuation reserve
Dr
Dr
Cr
Cr
6 000
2 000
Depreciation expense
Retained earnings (1/7/12)
Accumulated depreciation F&F
Dr
Dr
Cr
1 000
1 000
Deferred tax liability
Income tax expense
Retained earnings (1/7/12)
Dr
Cr
Cr
600
Dr
Cr
5 500
Dr
Dr
Dr
Dr
Dr
Cr
21 000
80 000
16 000
4 200
16 000
Dr
Dr
Dr
Dr
Cr
29 400
80 000
16 000
11 800
Dr
Cr
700
Goodwill
Business combination valuation reserve
225
175
700
2 400
5 600
2 000
300
300
5 500
2. Pre-acquisition entries
At 1 July 2011:
Retained earnings (1/7/11)
Share capital
General reserve
Asset revaluation surplus
Business combination valuation reserve
Shares in Madaleine Ltd
137 200
At 30 June 2013:
Retained earnings (1/7/12)*
Share capital
General reserve
Business combination valuation reserve
Shares in Madaleine Ltd
137 200
(* $21 000 + ($6 000 - $1 800) (inventory)
+ $4 200 transfer from ARS for land)
Transfer from business combination
valuation reserve
Business combination valuation reserve
700
Tutorial Week 7 Moodle Questions and Solutions
3. Current dividend paid
Dividend revenue
Interim dividend paid
Dr
Cr
2 000
Dividend payable
Final dividend declared
Dr
Cr
3 000
Dividend revenue
Dividend receivable (Other assets)
Dr
Cr
3 000
Dr
Dr
Cr
140
60
Sales revenue
Cost of sales
Inventory
Dr
Cr
Cr
15 000
Deferred tax asset
Income tax expense
Dr
Cr
300
Dr
Dr
Cr
700
300
Accumulated depreciation F&F
Depreciation expense
Retained earnings (1/7/12)
Dr
Cr
Cr
150
Income tax expense
Retained earnings (1/7/12)
Deferred tax asset
Dr
Dr
Cr
30
15
Dr
Cr
10 000
2 000
4. Dividend declared
3 000
3 000
5. Profit in opening inventory
Retained earnings (1/7/12)
Income tax expense
Cost of sales
200
6. Profit in ending inventory
14 000
1 000
300
7.Sale of furniture & fittings
Retained earnings (1/7/12)
Deferred tax asset
Furniture & fittings
1 000
8. Depreciation
100
50
45
9. Advances
Advance from Monique Ltd
Advance to Madaleine Ltd
10 000
10
Tutorial Week 7 Moodle Questions and Solutions
Sales revenue
Other income
Monique Madaleine
Ltd
Ltd
85 000
65 000
23 000
22 000
108 000
65 000
87 000
53 500
Other expenses
22 000
27 000
Profit before tax
Tax expense
87 000
21 000
7 200
80 500
6 500
2 000
Profit
Retained earnings
(1/7/12)
13 800
16 000
4 500
29 500
Transfer from BCVR
-29 800
4 000
10 000
14 000
15 800
-34 000
2 000
3 000
5 000
29 000
170 000
41 000
--
80 000
22 000
--
226 800
120 000
131 000
--
Cost of sales
Dividend paid
Dividend declared
Retrained earnings
(30/6/13)
Share capital
General reserve
Business comb.
valuation reserve
Total equity
Debentures
Def. tax liability
Dividend payable
Current tax liability
Other payables
Advance from
Madaleine Ltd
Total liabilities
Total equity and
liabilities
10 000
8 000
34 800
--
3 000
2 500
10 100
10 000
172 800
399 600
25 600
156 600
6
3
4
1
1
1
Adjustments
Dr
Cr
15 000
2 000
3 000
125
625
1 000
200
14 000
100
Group
135 000
40 000
5
6
8
5
8
60
30
225
300
300
1
1
6
1
1
2
5
7
8
2
175
1 000
29 400
140
700
15
700
300
50
1
8
700
2 000
3 000
3
4
2
2
2
80 000
16 000
11 800
1
4
600
3 000
10 000
5 600
5 500
700
1
1
2
2 400 1
175 000
104 300
50 650
154 950
20 050
8 465
11 585
14 420
-26 005
4 000
10 000
14 000
12 005
170 000
47 000
--
229 005
120 000
1 800
10 000
10 500
44 900
-187 200
416 205
11
Tutorial Week 7 Moodle Questions and Solutions
Monique
Ltd
Shares in Madaleine
Ltd
Land
Motor vehicles
Accumulated
depreciation
Furniture & fittings
Accumulated
depreciation
Inventory
Deferred tax asset
Advance to
Madaleine Ltd
Other assets
Goodwill
Total assets
Madaleine
Ltd
137 200
--
-28 000
(4 000)
24 480
22 000
(2 000)
34 000
(2 000)
37 300
(6 000)
171 580
16 200
70 320
7 400
10 000
8 620
-399 600
Group
Adjustments
Dr
Cr
137 200
--
24 480
50 000
(6 000)
1
1
8
2 000
6 000
150
1 000
2 000
7
1
72 300
(3 850)
6
7
300
300
1 000
45
6
8
240 900
24 155
--
10 000
--
3 100
-156 600
3 000
8 720
5 500
416 205
5 500
189 620
189 620
12
Tutorial Week 7 Moodle Questions and Solutions
MONIQUE LTD
Consolidated Statement of Profit or Loss and Other Comprehensive Income
for financial year ended 30 June 2013
Revenues:
Sales revenue
Other
Expenses:
Cost of sales
Other
Profit before income tax
Income tax expense
Profit for the period
Comprehensive income for the period
$135 000
40 000
104 300
50 650
$175 000
154 950
20 050
8 465
$11 585
$11 585
MONIQUE LTD
Consolidated Statement of Changes in Equity
for financial year ended 30 June 2013
Comprehensive income for the period
Retained earnings:
Balance at 1 July 2012
Profit for the period
Dividend paid
Dividend declared
Balance at 30 June 2013
Share capital:
Balance at 1 July 2012
Balance at 30 June 2013
General reserve:
Balance at 1 July 2012
Balance at 30 June 2013
$11 585
$14 420
11 585
(4 000)
(10 000)
$12 005
$170 000
$170 000
$47 000
$47 000
13
Tutorial Week 7 Moodle Questions and Solutions
MONIQUE LTD
Consolidated Statement of Financial Position
as at 30 June 2013
ASSETS
Current Assets
Inventories
Non-current Assets
Property, plant and equipment
Land
Furniture and fittings
Accumulated depreciation
Motor vehicles
Accumulated depreciation
Other assets
Goodwill
Tax assets: Deferred tax asset
Total Non-current Assets
Total Assets
EQUITY AND LIABILITIES
Equity
Share capital
General reserve
Retained earnings
Total Equity
Current Liabilities
Dividend payable
Current tax liabilities
Other payables
Total Current Liabilities
Non-current Liabilities:
Deferred tax liabilities
Interest-bearing liabilities: Debentures
Total Non-current Liabilities
Total Liabilities
Total Equity and Liabilities
$240 900
$24 480
$72 300
(3 850)
50 000
(6 000)
68 450
44 000
136 930
8 720
5 500
24 155
175 305
$416 205
$170 000
47 000
12 005
$229 005
10 000
10 500
44 900
65 400
1 800
120 000
121 800
$187 200
$416 205
14
