Question

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.

Answer 1

Answer

Liala Ltd

Journal Entries

Date	Particulars	Debit	Credit
1.Jul.16	Jordan Ltd account	$450,000	-
	Accumulated depreciation account	$300,000	-
	Statement of profit and loss account (Net loss on transfer of asset)	$105,000	-
	Deferred tax aaset account (Loss on sale *30%)	$45,000	-
	To Plant (Cost) Account	-	$900,000

Jordan Ltd

Journal Entries

Date	Particulars	Debit	Credit
1.Jul.16	Plant account	$450,000	-
	To Liala Ltd	-	$450,000
30.Jun.17	Depreciation expenses on plant ($450,000/5yr)	$90,000	-
	To Accumulated depreciation - Plant account	-	$90,000

Consolidated books of accounts

Journal Entries

Date	Particulars	Debit	Credit
30.Jun.17	Plant	$120,000	-
	To Deferred Liability asset amount (Unrealized loss on sale *30%)	-	$36,000
	To Statement of profit and loss account (Net unrealized loss on transfer of asset)	-	$84,000

Consolidated books of accounts

Journal Entries

Date	Particulars	Debit	Credit
30.Jun.17	Plant	$90,000	-
	To Deferred Liability asset account (Unrealized loss on sale *30%)	-	$27,000
	To Statement of profit and loss account (Net unrealized loss on transfer of asset)	-	$63,000

Working Note :

Calculation of unrealized profit on plant

Year	Carrying value of plant in Liala	Carrying value of plant in Jordan Ltd	Unrealized Loss	Deferred tax Liability
30.Jun.17	$480,000	$360,000	$(120,000)	$36,000
30.Jun.18	$360,000	$270,000	$(90,000)	$27,000