Reference no: EM132990178

Assume that both the Parent and Subsidiary adopt 31 December as their financial year-end. Further assume that the transactions were conducted on cash basis.

For each of the following independent scenarios in each of the independent parts:

Problem (i) Produce relevant journal entries in the separate financial statements of the Subsidiary and the Parent.

Problem (ii) Produce relevant consolidation journal entries for the preparation of the consolidated financial statements of the Parent.

Problem (iii) Compare and contrast the accounting treatment/principles that you had applied in the independent scenarios in each part in producing the journal entries and consolidation journal entries.

(a) On 20 December 20x1, a Parent paid interest of $200,000 to its 80%-owned Subsidiary. The Subsidiary recognised the interest as income whilst the Parent recognised the interest paid as an expense.

(b) On 20 December 20x1, a Parent paid interest of $200,000 to its 80%-owned Subsidiary. The Subsidiary recognised the interest as income whilst the Parent properly capitalised the interest paid as part of the cost of its construction work-in-progress in accordance with IAS 23 Borrowing Costs.