In: Accounting
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)
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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