Question

company accounting question:

Violet Ltd owns all the share capital of Indigo Ltd. The following transactions are independent:

1. Indigo Ltd gives $55 000 as an interest-free loan to Violet Ltd on 1 July 2019. Violet Ltd made a $20 000 repayment by 30 June 2020.
2. Indigo Ltd rented a spare warehouse to Violet Ltd starting from 1 July 2019 for 1 year. The total charge for the rental was $3 500, and Violet Ltd paid half of this amount to Indigo Ltd on 1 January 2020 and the rest on 1 July 2020.
3. During March 2020, Indigo Ltd declared a $5000 dividend. The dividend was paid in August 2020.

Required

In relation to the above intragroup transactions:

1.      Prepare adjusting journal entries for the consolidation worksheet at 30 June 2020.

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

Answer 1

Answer:-

Adjusting entries are passed in combined fiscal summaries for mesh off pay and costs of intra bunch exchanges, with the goal that merged budget reports are readied net off intra bunch exchanges and shows genuine outside benefit of gathering.

Following are adjusting journal entries for the consolidation worksheet at 30 June 2020 alongside clarification are as per the following:

I) Interest free credit: There will be no modification passage for the above exchange as advance given is sans intrigue and subsequently there will be no intrigue pay in the books of Indigo ltd. nor intrigue costs in Violet ltd. In accounting report, intra bunch resources and liabilities are wiped out.

ii) Rental Income: Half sum is gotten up-to June 2020 and half is receivable as on 30 June 2020:

Rental salary A/c Dr $1750

Rental Income payable A/c Dr $1750

To Rental Expenses A/c $1750

To Rental Income receivable A/c   $1750

As rental salary is appeared as pay in the books of Indigo Ltd and rental costs are appeared as costs in Violet Ltd. implies benefit is appeared in Indigo Ltd. what's more, costs are deducted in Violet Ltd. Subsequently, for mesh off pay and costs above modifying sections are to be made in merged FS.

iii) Dividend Declared: As profit is proclaimed before 30 June 2020 and paid in August 2020, consequently to net-off this profit receivable and profit payable beneath modifying passage is to passed:

Profit Payable A/c Dr $5000

To Dividend Receivable A/c $5000