(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 appropriateconsolidation adjustment entries are as follows: Sales Dr 15 000Cost of Sales Cr 13000Inventory Cr 2000Deferred Tax Asset Dr 300Income Tax Expense Cr 300Required(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basisthe correct adjustment entry. (2.5 marks)(ii)Determine the consolidation worksheet entries in the following year, assuming the inventoryhas been –sold, and explain the adjustments on a line-by-line basis. (b) On 1 July 2016 Liala Ltd sold an item of plant to Jordan Ltd for $450000 when its’ carrying value in Liala Ltd bookwas $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 rateis 30 percent.Required:Pass the necessary entries on 30 June 2017 and 30 June 2018 to eliminate the intra-grouptransfer of equipment.
(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
Sales Dr 15 000
Cost of Sales Cr 13000
Inventory Cr 2000
Income Tax Expense Cr 300
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.
(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.
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