Question

(a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows: Required (i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry. (2.5 marks) (ii)Determine the consolidation worksheet entries in the following year, assuming the inventory has been –sold, and explain the adjustments on a line-by-line basis. (1.5 marks) (b) On 1 July 2016 Liala Ltd sold an item of plant to Jordan Ltd for $450000 when its’ carrying value in Liala Ltd book was $600000 (costs $900000, accumulated depreciation $300000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and equipment using a costs model. Tax rate is 30 percent. Required: Pass the necessary entries on 30 June 2017 and 30 June 2018 to eliminate the intra-group transfer of equipment.

Answer 1

Inventory scale $15000

cost $12000

1.Debit Amelie LTD. for 15000

Credit p/L A/C 3000

Credit invetory   12000

2. Debit Ningbo LTD 8000

Credit Amelie 7500

Tax liability30%   2400

3. Plant sale price 450000

Book value    600000

Cost    (900000)

Depreciation   (300000)

Loss on sale    (150000)

Bank debit   450000

P/L Debit      150000

Credit plant    600000