In: Accounting
Avig Ltd acquired 80% of the issued capital of Non Ltd on 1 July 2015. The following three transactions occurred. 1) On 1 July 2018, Avig Ltd purchased equipment from Non Ltd for $1,500,000. The equipment had originally cost Non Ltd $1,200,000 when acquired on 1 July 2016. Non Ltd had been depreciating the equipment over 12 years using the straight-line method. Avig Ltd expected the remaining useful life of the equipment to be 10 years and also depreciates using the straight-line method. 2) In May 2020, Avig Ltd sold inventory costing $80,000 to Non Ltd for $150,000. One quarter of this inventory remained on hand as at 30 June 2020. 3) Non Ltd paid a final dividend of $500,000 on 30 June 2020. Required Based on the information provided, prepare the intra-group journal entries, including all related tax effects, required upon consolidation as at 30 June 2020. The tax rate is 30%. Note: NCI allocation journals are not required.
Journal entries upon consolidation as at 30 June 2020:
1. Subsidiary P& l a/c Dr ($50000*80%) $40,000
NCIa/ Dr (50000*20%) $10,000
To Group Fixed Assest cr $ 50,000
( Being Elimination of unrealised Profit on Equipment)
2. Avig P& L A/c Dr ($1,50,000*25%*70000/150000) $17,500
To Group Inventory A/c Cr $17,500
( being Elimination of un realised profit on Inventpry)
3.Group P& L A/c Dr ($150000-$100000)*30%+($150000/4-$80000/4)*30% $20,250
To Deferred Tax Liability Cr $ 15,000 $ 20,250
( Being recognition of deferred tax liability due to timming difference)
Working Note 1: Calculation of Carrying value of Equipment as on 01.July 2018
Purchased on 01 July 2016 at $1,20,000
(-) Less Depreciation for 2 years ($1,20,000/12*2 Years) $ 20,000
Carrying Value as on 01.07.2018 is $1,00,000
Working note : 2. Calculation of additional Depreciation in the Books of Avig Ltd
Cost $ 1,50,000/10 =$15000