Topic_9_Tutorials.pptx - MAA716 Financial Accounting Topic 9 Chapter 26 Tutorials Consolidation Accounting for Intragroup Transactions Question 26.7 A

Topic_9_Tutorials.pptx - MAA716 Financial Accounting Topic...

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MAA716 Financial Accounting Topic 9 – Chapter 26 Tutorials Consolidation - Accounting for Intragroup Transactions
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Question 26.7A Ltd owns 100 per cent of B Ltd, which in turn owns 100 per cent of C Ltd. During the financial year, A Ltd sells inventory to B Ltd at a sale price of $150 000. The inventory cost A Ltd $100 000 to produce.Within the same financial year, B Ltd subsequently sells the same inventory to C Ltd for $200 000 without incurring any additional costs. At the end of the financial year, C Ltd has sold half of this inventory to companies outside the group for a sale price of $180 000. At year end C Ltd still has half the stock on hand.REQUIREDFrom the economic entity’s perspective (that is, the group’s perspective), determine: (a)the sales revenue for the financial year(b)the value of closing inventory.
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(a)The only revenue that should be shown in the consolidated financial statements of the economic entity is the revenue that relates to sales external to the entity. In this case, the sales revenue for the financial year from the economic entity’s perspective would be $180 000, as shown diagrammatically below.$150 000A LtdB LtdC Ltdexternal sales$200 000$180 000economic entity
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(b)Inventory must be valued at the lower of cost and net-realisable value. From the economic entity’s perspective, the inventory cost $100 000 to produce. As half of this inventory is on hand at the end of the reporting period, the value of inventory for the purposes of the consolidated financial statements is $50 000.
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Challenging Question 26.13The following financial statements of Andy Ltd and its subsidiary Irons Ltd have been extracted from their financial records at 30 June 2019.Andy Ltd ($) Irons Ltd($)Reconciliation of opening and closing retained earnings:Sales revenue839 250725 000Cost of goods sold(580 000)(297 500)Gross profit259 250427 500Dividends received from Irons Ltd116 250--- Management fee revenue33 125---Gain on sale of plant43 750---Expenses:Administrative expenses(38 500)(48 375)Depreciation(30 625)(71 000)Management fee expense---(33 125)Other expenses(126 375)(96 250)Profit before tax256 875178 750Tax expense76 87552 750Profit for the year180 000126 000Retained earnings—30 June 2018399 250299 000579 250 425 000Dividends paid(171 750)(116 250)Retained earnings—30 June 2019407 500308 750
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Statement of financial position Andy Ltd ($) Irons Ltd($) Shareholders’ equity: Retained earnings 407 500 308 750 Share capital 437 500 250 000 Current liabilities Accounts payable 57 875 Tax payable 100 000 31 250 Non-current liabilities Loans 236 000 145 000 Total L. & S.E. 1 181 000 792 875 Current assets: Accounts receivable 74 250 77 875 Inventory115 000 36 250 Non-current assets: Land and buildings198 750 407 500 Plant—at cost 400 000 444 750 Accumulated depreciation (107 000) (173 500) Investment in Irons Ltd 500 000 ---- Total Assets 1 181 000 792 875
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  • Balance Sheet, Generally Accepted Accounting Principles, Economic entity, Irons Ltd

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