Reference no: EM132893692

Exercise 1

Current and prior periods intragroup transfers of inventories

Amani Ltd owns all of the share capital of Rebecca Ltd. The income tax rate is 30%. The fol- lowing transactions took place during the periods ended 30 June 2019 or 30 June 2020.

(a) In January 2020, Amani Ltd sells inventories to Rebecca Ltd for $15 000 in cash. These inventories had previously cost Amani Ltd $10 000, and remain unsold by Rebecca Ltd at the end of the period.
(b) In February 2020, Amani Ltd sells inventories to Rebecca Ltd for $17 000 in cash. These inventories had previously cost Amani Ltd $12 000, and are on-sold externally on 2 April 2020.
(c) In February 2020, Rebecca Ltd sells inventories to Amani Ltd for $22 000 in cash (original cost to Rebecca Ltd was $16 000) and half are on-sold externally by 30 June 2020.
(d) In March 2020, Amani Ltd sold inventories for $10 000 to Zara Ltd, an external entity. These inventories were transferred from Rebecca Ltd on 1 June 2019. The inventories had originally cost Rebecca Ltd $6000, and were sold to Amani Ltd for $12 000.
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.

Exercise 2
Current and prior periods intragroup transfers of non-current assets
Sophie Ltd owns all the share capital of Ruby Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020.
(a) On 1 July 2018, Sophie Ltd sold a motor vehicle to Ruby Ltd for $15 000. This had a car- rying amount to Sophie Ltd of $12 000. Both entities depreciate motor vehicles at a rate of 10% p.a. on cost.
(b) Ruby Ltd manufactures items of machinery which are used as property, plant and equipment by other companies, including Sophie Ltd. On 1 January 2019, Ruby Ltd sold such an item to Sophie Ltd for $62 000, its cost to Ruby Ltd being only $55 000 to manu- facture. Sophie Ltd charges depreciation on these machines at 20% p.a. on the diminish- ing value.
(c) Sophie Ltd manufactures certain items which it then markets through Ruby Ltd. During the period ended 30 June 2020, Sophie Ltd sold for $12 000 items to Ruby Ltd at cost plus 20%. By 30 June 2020, Ruby Ltd has sold to external entities 75% of these transferred items.
(d) Ruby Ltd also sells second-hand machinery. Sophie Ltd sold one of its depreciable assets (original cost $40 000, accumulated depreciation $32 000) to Ruby Ltd for $5000 on 1 January 2020. Ruby Ltd had not resold the item by 30 June 2020.
(e) Ruby Ltd sold a depreciable asset (carrying amount of $22 000) to Sophie Ltd on 1 Jan- uary 2019 for $25 000. Both entities charge depreciation in relation to these items at a rate of 10% p.a. on cost. On 31 December 2019, Sophie Ltd sold this asset to Dubbo Ltd, an external entity, for $20 000.
Required
In relation to the above intragroup transactions:
1. Prepare adjusting journal entries for the consolidation worksheet at 30 June 2019 and 30 June 2020.

Exercise 3
Current period intragroup transfers of inventories and non-current assets

Isolde Ltd owns all the share capital of Annabelle Ltd. The income tax rate is 30%. During the period ended 30 June 2020, the following transactions took place:
(a) Annabelle Ltd sold inventories costing $50 000 to Isolde Ltd. Annabelle Ltd recorded a
$10 000 profit before tax on these transactions. At 30 June 2020, Isolde Ltd has none of these goods still on hand.
(b) Isolde Ltd sold inventories costing $12 000 to Annabelle Ltd for $18 000. By 30 June 2020, one-third of these were sold to Willow Ltd for $9500 and one-third to Layla Ltd for
$9000; the rest are still on hand with Annabelle Ltd. Willow Ltd and Layla Ltd are exter- nal entities.
(c) On 1 January 2020, Isolde Ltd sold land for cash to Annabelle Ltd at $20 000 above cost. The land is still on hand with Annabelle Ltd.
(d) Annabelle Ltd sold a warehouse to Isolde Ltd for $100 000 on 1 July 2019. The carrying amount of this warehouse recognised by Annabelle Ltd at the time of sale was $82 000. Isolde Ltd charges depreciation at a rate of 5% p.a. on cost.
Required
In relation to the above intragroup transactions:
1. Prepare adjusting journal entries for the consolidation worksheet at 30 June 2020. ISOLDE LTD - ANNABELLE LTD

Exercise 4
Current and prior period intragroup services
Alice Ltd owns all the share capital of Isabella Ltd. The following intragroup transactions took place during the periods ended 30 June 2019 and 30 June 2020:
(a) Isabella Ltd paid $20 000 during the period ended 30 June 2019 and $40 000 during the period ended 30 June 2020 as management fees for services provided by Alice Ltd.
(b) Isabella Ltd rented a spare warehouse to Alice Ltd starting from 1 July 2018 for 1 year. The total charge for the rental was $30 000, and Alice Ltd paid this amount to Isabella Ltd on 1 January 2019.
(c) Isabella Ltd rented a spare warehouse from Alice Ltd for $50 000 p.a. The rental contract started at 1 January 2019 (this rental agreement is for 2 or more years), and the payments are made annually in advance on 1 January.

Required
In relation to the above intragroup transactions:
Prepare adjusting journal entries for the consolidation worksheet at 30 June 2019 and 30 June 2020.