Question

On 1 July 2020 S Ltd acquired 60% of the issued shares of P Ltd. During the year ended 30 June 2021 the following intra group transactions occurred:

1. Sales of inventory: P Ltd to S Ltd $200,000 (Cost to P Ltd $150,000)

2. Intragroup inventory on hand 30 June 2021: S Ltd held 40% of the inventory acquired from P Ltd

3. Intragroup sale of equipment An item of equipment originally acquired by S Ltd on 1 July 2018 at a cost of $200,000 was sold to P Ltd on 1 July 2020 for $170,000. S Ltd had depreciated this asset at 10% per annum on a straight line basis with no scrap value. Subsequent to the sale the expected useful life of the asset is a further 4 years.

4. During the year ended 30 June 2021 the following dividends were paid:

• S Ltd       $10,000
• P Ltd       $2,000

5. On 31 December 2020 S Ltd lent P Ltd $100,000. Interest on this loan at 6% was paid up to 30 June 2021.

6. During the year ended 30 June 2021 P Ltd paid S Ltd $4,000 for management services.

Required.

Prepare the consolidation journal entries required to eliminate the above intragroup transactions for the year ended 30 June 2021. Assume a tax rate of 30%

Answer 1

Sale of inventory
	Sales	80000
	To cost of goods sold		60000
	To inventory		20000
	Deferred tax asset	6000
	To income tax		6000
Sale of equipment
	Gain on sale of equipment	10000
	To equipment		10000
	Accumulated depreciation	2500
	To depreciation expense		2500
	Deferred tax asset	2250
	To income tax		2250
Dividends paid
	Investment in P Ltd	1200
	To dividends		1200
Loan
	Notes payable	10000
	To notes receivable		10000
	Interes income	3000
	To interest on loan		3000
Management services
	Service fees revenue	4000
	To professional fees		4000

Inventory
Sales price	200000
Cost	150000
Profit	50000
% for inventory help	20000
Equipment	Cost	Depreciation
2018	200000
	20000
2019	180000
	20000
2020	160000	40000
Sale price	170000	42500
Profit	10000	2500