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On 1 July 2016 Liala Ltd sold an item of plant to Jordan Ltd for $450000...

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. (provide the dates)

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ANSWER

Journal EntrieS
Liala Ltd
Date Particulars Debit Credit
1.07.2016 Accounts Receivable (Jordan Ltd) $450,000
Accumulated depreciation $300,000
Loss on sale of plant(After tax) $105,000
Deferred tax asset ($150,000* 30%) $45,000
    Plant (Cost) $900,000
(Being Plant sold as per cost model)
Jordan Ltd
Date Particulars Debit Credit
1.07.2016 Plant $450,000
    Accounts Payable (Liala Ltd) $450,000
(Being plant purchased from Liala Ltd)
30.06.2017 Depreciation Expense ($450,000/5) $90,000
    Accumulated Depreciation $90,000
(Being Depreciation charged)
Consolidation entries
Date Particulars Debit Credit
30.06.2017 Plant $120,000
Deferred tax liability (30% of 120,000) $36,000
Unrealized loss on transfer of asset (after tax) $84,000
(Being entry for intra group transfer)
30.06.2018 Plant $90,000
Deferred tax liability (30% of 90,000) $27,000
Unrealized loss on transfer of asset (after tax) $63,000
(Being entry for intra group transfer)
Working
calculation of unrealized loss on plant
Year Carrying value Carrying value Unrealized loss Deferred tax
of plant in Liala of plant in Jordan Liability
30.06.2017 $480,000 $360,000 $120,000 $36,000
30.06.2018 $360,000 $270,000 $90,000 $27,000

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