Reference no: EM132681988
Problem - a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltd for $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows:
Sales Dr 15 000
Cost of Sales 13 000
Inventory 2 000
Deferred Tax Asset Dr 300
Income Tax Expense Cr 300
Required -
(i) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry.
(ii) Determine the consolidation worksheet entries in the following year, assuming the inventory has been -sold, and explain the adjustments on a line-by-line basis.
b) On 1 July 2016 Liala Lid sold an item of plant to Jordan Lid 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?