Consolidations: Intragroup transactions

Question 1

Which transactions should be recorded in the group’s financial statements?

Answer 1

Only transactions between group and third party

Question 2

Elimination journal of intragroup rent

Answer 2

Rent income ………………………. xxx

……..Rent expense……………xxx

Question 3

Elimination journals of intragroup loans

Answer 3

Loan from P…………………..xxx
…….. Loan to S……………………xxx

Finance income ………………..xxx
…….Finance costs…………………..xxx

Question 4

How do you calculate % of interest that is acquired?

Answer 4

% interest = # shares acquired / # shares in S ordinary share capital

Question 5

How do you calculate pre-tax mark-to-market ?

Answer 5

pre-tax = ### x 100/77.6

Question 6

Consolidation journal if investment is stated at fair value

Answer 6

Mark-to-market reserve: Equity instruments …………… xxx
Deferred tax ………………………………………………………………..xxx
……….Investment in S…………………………………………………………….xxx

Question 7

Which intragroup transactions influence consolidated profit and tax?

Answer 7

Intragroup transactions which include unrealised profits

Question 8

Consolidation journal for elimination of unreaised profit

Answer 8

Cost of sales …………………..xxx

……….Inventory…………………………xxx

Question 9

Consolidation journal for tax implications of eliminating unrealised profits

Answer 9

Deferred tax ………………….xxx

……..Income tax expense ……………….xxxx

Question 10

Inventories are valued at …

Answer 10

…lower of cost and NRV

Question 11

Write-off to NRV >= unrealised profit

ie
closing inventory - NRV value >= closing inventory - CP to GROUP[

Answer 11

Unrealised profit not eliminated on consolidation

Loss on write-down to NRV ……………………xxx
……….Inventories……………………………………………….xxx

Question 12

Write-off to NRV < unrealised profit

ie
closing inventory - NRV value < closing inventory - CP to GROUP

Answer 12

Difference eliminated in unrealised profit consolidation journal

Loss on write down to NRV …………………………………xxx
…….Inventories…………………………………………………………………..xxx

Cost of sales ………………………………………………………..*
…….Inventories………………………………………………………………….*

Question 13

Calculating unrealised profit given COST PLUS 20%

Answer 13

CP………..100
Profit…….20%
SP…………120

Question 14

Calculating unrealised profit given 20 GROSS PROFIT %

Answer 14

CP………….80
Profit……..20
SP………….100

Question 15

INTRAGROUP PROFIT ON NON‐

DEPRECIABLE PPE

Answer 15

Full intragroup profit eliminated on

consolidation until sold to 3rd party

Question 16

INTRAGROUP PROFIT ON

DEPRECIABLE PPE

Answer 16

Realise as asset is used, i.e. through depreciation
OR
When asset is sold to 3rd party

Question 17

INTRAGROUP PROFIT ON
DEPRECIABLE PPE

Year 1 consolidation journal

Answer 17

Eliminate full profit

Profit on sale ………………………………xxx
…..Machinery…………………………………………xxx

Question 18

INTRAGROUP PROFIT ON
DEPRECIABLE PPE

Year 2 consolidation journals

Answer 18

Correct opening balances

RE - beginning..(total profit - depr Y1)………..xxx
Acc depr………………………………………………………xxx
…….Machinery…………………………………………………….xxx

Realise profit for the year

Acc depr………………………………………………………xxx
…….Depr………………………………………………………………xxx

Inc tax expense…(Depr x 0.28)………………….xxx
……Deferred tax …………………………………………………xxx