Apple Limited has a 100% holding in Picnic Limited Apple Limited runs a distillery in northern...

Apple Limited has a 100% holding in Picnic Limited

Apple Limited runs a distillery in northern Tasmania supplying its highly acclaimed gin across the globe. This business was severely affected by the Corona Virus pandemic and the directors decided to use the now spare capacity for the provision of medical supplies. Specialists from Picnic Limited assisted by converting the stills from making gin to producing hand sanitiser. During this period Picnic Limited charged Apple Limited $145 000 for the expertise provided.

Prepare the Consolidation Adjusting Journal Entries for the consolidated financial statements as at 30 June 2020 by eliminating the intragroup service provision.

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Expert Solution

Consolidated Financial Statement

Consolidated financial statement means the financial statement which are prepared for the entity as if the companies were a single entity.Therefore the effect of all the transaction between parent comoany and subsidiary company should be eliminated while preparing consolidated financial statement.

The intercompany sale of goods or services should be eliminated to arrive at the correct revenue of the company as whole

Here the Picnic Limited(Subsidairy company of Apple Limited) charged $145000 for the services provided to Apple limited (being the 100% holding )by the specialists from Picnic limited.

Picnic Limited have credited this amount ($ 145000) as their income(Service charges receivable ) in their income statement and the same time Apple limited have debited this amount as their expenses (Expense for service charges)in their income statement.But while taking the company as single entity net effect of both the transaction will be zero.Hence while making consolidated financial statement,these type of inter company transactins sholud be eliminated

Consolidating adjusting entry will be

Service charges receivable $145000

To Expense for Service charges $145000

(Being elimination of inter company transaction )

ekkarill92 answered 2 years ago

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