ex24.1 intragroup - 1 TUTORIAL 8 SOLUTIONS Chapter 24 –...

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Unformatted text preview: 1 TUTORIAL 8 SOLUTIONS Chapter 24 – Consolidation: intragroup transactions DISCUSSION QUESTIONS 1. Why is it necessary to make adjustments for intragroup transactions? The consolidated financial statements are the statements of the group, an economic entity consisting of the parent and its subsidiaries. The consolidated financial statements then can only contain profits, assets and liabilities that relate to parties external to the group. Adjustments must be made for intragroup transactions as these are internal to the economic entity, and do not reflect the effects of transactions with external parties. This is also consistent with the entity concept of consolidation, which defines the group as the net assets of the parent and the net assets of the subsidiary. Transactions between these parties must then be adjusted in full as both parties are within the economic entity. Discuss the various types of intragroup transactions: Services Rent Sales of inventory Borrowings at interest or interest free Transfer of property, plant or equipment Dividends 2 EXERCISES Exercise 24.1: Consolidation journals for 30 June 2010 - Intragroup transactions Sydney Ltd – Geelong Ltd (a) Dr Cr Cr 50 000 Deferred tax asset Income tax expense Dr Cr 750 Retained earnings (1/7/09) Deferred tax asset Warehouse (Net) Dr Dr Cr 12 600 5 400 Accumulated depreciation Depreciation expense Retained earnings (1/7/09) Dr Cr Cr 1 350 Income tax expense Retained earnings (1/7/09) Deferred tax asset cos it appeared Dr Dr Cr 270 135 Sales revenue Cost of sales Inventory Dr Cr Cr 18 000 Deferred tax asset Income tax expense (b) Sales revenue Cost of sales Inventory Dr Cr 600 Retained earnings (1/7/09) Income tax expense Cost of sales Dr Dr Cr 1 400 600 Dr Cr Cr 3 000 above (c) (d) 47 500 2 500 750 18 000 900 450 405 16 000 2 000 600 2 000 (U/P op. inventory held by Sydney is 8,000 – 6,000) Sales revenue Cost of sales Inventory 2 500 500 (U/P cl. inventory held by Sydney is (8,000 – 6,000) x 25% Deferred tax asset Income tax expense Dr Cr 150 150 3 Exercise 24.1 (Cont’d) only consider dividend declared or paid by S (e) 5 000 Dr Cr 5 000 Debentures Debentures in Sydney Ltd Dr Cr 40 000 Interest revenue Interest expense (15% x $40 000 x ¾) Dr Cr 4 500 Interest payable Interest receivable (15% x $40 000 x ¼) (g) Dr Cr Dividend revenue Dividend receivable (f) Dividend payable Dividend declared Dr Cr 1 500 Retained earnings (1/7/08) Income tax expense Cost of sales Dr Dr Cr 700 300 5 000 5 000 40 000 4 500 1 500 1 000 ...
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This note was uploaded on 12/06/2011 for the course ACCT 2542 taught by Professor Knapp during the One '11 term at University of New South Wales.

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