Exercise 28.11 Intragroup transfers of inventories, non-current assets, services and borrowings Kaitlyn Ltd owns all the...

Exercise 28.11

Intragroup transfers of inventories, non-current assets, services and borrowings

Kaitlyn Ltd owns all the share capital of Eve Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2022 or 30 June 2023.

(a) On 1 May 2022, Eve Ltd sold inventories costing $600 to Kaitlyn Ltd for $1200 on credit. On 30 June 2022, only half of these goods had been sold by Kaitlyn Ltd, and Kaitlyn Ltd had paid $600 to Eve Ltd. All remaining inventories were sold to external entities by 30 June 2023 and Kaitlyn Ltd paid the outstanding amount to Eve Ltd on 5 May 2023.

(b) On 1 January 2022, Kaitlyn Ltd sold an item of plant to Eve Ltd for $10 000. Immediately before the sale, Kaitlyn Ltd had the item of plant on its accounts for $12 000. Kaitlyn Ltd depreciated items at 5% p.a. on the diminishing balance and Eve Ltd used the straight-line method over 10 years.

(c) An inventories item with a cost of $4000 was sold by Kaitlyn Ltd to Eve Ltd for $3600 on 1 January 2023. Eve Ltd intended to use this item as equipment. Both entities charge depreciation at the rate of 10% p.a. on the diminishing balance on non-current assets. The item was still on hand at 30 June 2023.

(d) Kaitlyn Ltd provided management services to Eve Ltd during the period ended 30 June 2023. The total charge for those services was $5000 that was unpaid at 30 June 2023.

(e) Kaitlyn Ltd borrows $60 000 from Eve Ltd on 1 July 2021 with an interest rate of 6% p.a. The loan is for 5 years. The interest is to be paid biannually in arrears, starting on 31 December 2021.

Required

In relation to the above intragroup transactions:

1. Prepare adjusting journal entries for the consolidation worksheet at 30 June 2022 and 30 June 2023.

2. Explain in detail why you made each adjusting journal entry.

Expert Solution

1. Adjusting journal entries for the consolidation worksheet are:

ekkarill92 answered 1 year ago

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