Question

Consolidation Intragroup

Koala Ltd owns all of the shares of Kangaroo Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2016. Assume an income tax rate of 30%. Show workings and tax effects.

1. In April 2016, Koala Ltd sells inventory to Kangaroo Ltd for $10 000. This inventory had previously cost Koala Ltd $8000, and it remains unsold by Kangaroo Ltd at the end of the period.

2. Half of the inventory in (a) is sold to Galah Ltd, an external party, for $8200 on 20 June 2016.The remainder is still unsold at the end of the period.

3. In May 2016, Koala sold land to Kangaroo for $16 000. The land originally cost Koala $12 000.

REQUIRED Prepare journal entries to record the above intragroup transactions.

Note: Detailed explanations with every intragroup transactions must be included

Answer 1

1. Sales Revenue Dr $10,000

To Cost of Sales $8,000

To Inventory $2,000

(To record intra group transaction of inventory)

Deferred tax asset Dr $600

To Income Tax Expense $600

(30% * $2,000)

(To record deferred tax asset on inventory)

2. Sales Revenue Dr $10,000

To Cost of Sales $9,000

  To Inventory $1,000

(To record sale of half of the inventory)

Deferred tax asset Dr $300

To Income Tax Expense $300

(30% * $1,000)

(To record deferred tax asset on inventory)

3. Land Dr $16,000

To Cost of Land $12,000

To Consolidated P/L $4,000

(To record intra group transaction of land)

Deferred tax asset Dr $1,200

To Income Tax Expense $1,200

(30% * $4,000)

(To record deferred tax asset on land)