Reference no: EM132858943

Question - Intragroup transactions - On 1 July 2017, Coffee Ltd acquired 100% of the equity in Tea Ltd. The following intragroup transactions need to be considered in the preparation of the group's consolidated financial statements for the year ended 30 June 2019:

a) At 1 July 2018, there was a profit in inventory of Coffee Ltd of $7,000 on goods acquired from Tea Ltd in the previous period. All this inventory was sold by 30 June 2019.

b) On 1 July 2018 Coffee Ltd sold an item of plant to Tea Ltd for $16,000. This plant had a carrying amount in the records of Bow Ltd of $14,000 at the time of sale. This type of plant is depreciated at 20% per year on cost.

c) On 1 January 2019, Coffee Ltd sold equipment to Tea Ltd for $50,000. At the time of sale, the equipment had a carrying amount of $40,000. Coffee Ltd depreciated the equipment at 10% per year on cost, whereas Tea Ltd classified the equipment as inventory. The equipment was sold by Tea Ltd on 30 June 2019.

Required - Prepare the consolidation journal entries at 30 June 2019 to adjust for the effects of the above intragroup transactions.