Question

1. Aladdin Ltd owns all of the share capital of Genie Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020.
2. 1. In January 2020, Aladdin Ltd sells inventories to Genie Ltd for $15 000 in cash. These inventories had previously cost Aladdin Ltd $10 000, and remain unsold by Genie Ltd at the end of the period.   
3. 2. In February 2020, Aladdin Ltd sells inventories to Genie Ltd for $17 000 in cash. These inventories had previously cost Aladdin Ltd $12 000, and are on-sold externally on 2 April 2020.

1. 3. In February 2020, Genie Ltd sells inventories to Aladdin Ltd for $22 000 in cash (original cost to Genie Ltd was $16 000) and half are on-sold externally by 30 June 2020.
2. 4. In March 2020, Aladdin Ltd sold inventories for $10 000 to Zara Ltd, an external entity. These inventories were transferred from Genie Ltd on 1 June 2019. The inventories had originally cost Genie Ltd $6000, and were sold to Aladdin Ltd for $12 000.   

Required

In relation to the above intragroup transactions, prepare adjusting journal entries for the consolidation worksheet at 30 June 2020.

Answer 1

30 June 2020

(a) Sales Revenue Dr $15,000

To Cost of Sales   $10,000

To Inventories $5,000

Deferred tax asset Dr    $1,500

To Income tax expense $1,500

(b) Sales Revenue Dr $17,000

To Cost of Sales   $17,000

(c) Sales Revenue Dr $22,000

To Cost of Sales. $19,000

To Inventories $3,000

Deferred tax asset Dr. $900

To Income tax expense $900

(d) Retained Earnings (1/7/19) Dr $4,200

Income tax expense Dr $1,800

To Cost of sales $6,000

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