Reference no: EM133004434
Question - Giant Ltd owns 100 per cent of the shares of Small Ltd. These shares are acquired on 1 July 2019 for $2,100,000 when the shareholders' funds of Small Ltd are: Share capital $1,000,000 and Retained earnings $800,000.
During the 2020 financial year, Small Ltd sells inventory to Giant Ltd at a sales price of $300,000 on credit. The inventory cost Small Ltd $220,000 to produce. At 30 June 2020, 25% of the stock is still on hand with Giant Ltd.
During the financial 2020 financial year, Giant Ltd sold an item of machinery to Small Ltd for $100,000. Its cost to Giant Ltd being $80,000 to manufacture and had accumulated depreciation of $40,000 at the date of the sale. The remaining useful life of the machinery is 5 years. The group uses the straight line method of depreciation.
All assets of Small Ltd are fairly stated at the acquisition date. The directors believe that during the financial year ending 30 June 2020 the value of goodwill has been impaired by an amount of $21,000.
Giant Ltd provided management services to Small Ltd during the period ended 30 June 2020. The total charge for those services was $5,000 that was unpaid at 30 June 2020.
Small Ltd borrows $80,000 from Giant Ltd on 1 July 2019 with an interest rate of 6% p.a. The loan is for 5 years. The tax rate is 30 percent.
Required - Show the relevant consolidated journal entries for the year ended 30 June 2020 (including tax effects where relevant).
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