Intragroup Transaction - Inventory Sold As Equipment

Question 1

What is the pro forma journal entry 1 - adjustment to ensure that the consolidated retained earnings at the beginning of the year is in agreement with the consolidated retained earnings at the end of previous year?

Answer 1

Dr Retained earnings - beginning of year (S)(SCE)
Dr Deferred tax (SFP)
Dr Accumulated depreciation (P)(SFP)
Cr Equipment (P)(SFP)
Explanation: as the retained earning was adjust at the end of previous year for the unrealized profit in the equipment, therefore the equipment is overstated which needs to be decreased and the accompanying accumulated depreciation is subsequently over provided (value of equip is lower) therefore needs to be decreased too. As the profit for seller is overstated we need to adjust the retained earning and the tax effect of it (decrease both)

Question 2

What is pro forma journal 2 of realization of unrealized gain included in the equipment of buyer as a result of depreciation?

Answer 2

Dr Accumulated depreciation (P)(SFP)
Cr Other expenses / depreciation (S)(P/L)
Explanation:

Question 3

What is pro forma journal 3 for the tax implication of realization of unrealized profit?

Answer 3

Dr Income tax expense (S)(P/L)

Cr Deferred tax (SFP)

Question 4

What is the pro forma journal 4 for elimination of intra group sales and unrealized profit included in the equipment?

Answer 4

Dr    Revenue (S)(P/L)
        Cr    Cost of sales (S)(P/L)
        Cr    Equipment (P)(SFP)

Question 5

What is pro forma journal 5 for the tax implication of the elimination of unrealized gain included in equipment buyer?

Answer 5

Dr Deferred tax (SFP)

Cr Income tax expense (S)(P/L)

Question 6

What is pro forma journal 6 realization of unrealized gain included in the equipment of buyer as result of depreciation?

Answer 6

Dr Accumulated depreciation (P)(SFP)

Cr Other expenses - depreciation (S)(P/L)

Question 7

What is the pro forma journal 7 of tax implication of realization of unrealized profit as a result of depreciation?

Answer 7

Dr Income tax expanse (S)(P/L)

Cr Deferred tax (SFP)

Question 8

What is the main elimination pro forma journal entry?

Answer 8

Dr Share capital (S)(SCE)
Dr Retained earnings (S)(SCE)
Cr Investment is S Ltd (P)(SFP)
Cr Non controlling interest (SFO)

Question 9

What is the pro forma journal entry for recognition of non controlling interest’s share of the retained earnings of the subsidiary from acquisition until beginning of current year?

Answer 9

Dr Retained earnings - beginning of year (S)(SCE)

Cr Non controlling interest (SFP)

Question 10

What is the journal entry for recognition of non controlling interest’s share in profit for the year?

Answer 10

Dr Non controlling Internet (P/L)

Cr Non controlling interest (SFP)