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The consolidation journals required in relation to all inter-entity transactions to consolidate T and U as at 30 June 2008:

Inventory

The closing inventory of T Ltd at 30 June 2008 included goods that cost T $2,100
T purchased this inventory from U Ltd at cost plus 25.00%
Total purchases by T from U during the year ended 30 June 2008 were $9,000

The Consolidation Journal Adjustment entry to be recorded in this case would be as follows:

 

Particulars Amount($)
DR Sales Revenue 9000
CR Cost of Goods Sold 8580
CR Inventory  420

 

Workings:

Cost of goods sold by U Ltd. To T Ltd. = $9000/125% (U sold to T at cost + 25%)

                                                                = $7200

Out of the above purchases of $9000 made by T Ltd., goods amounting to $2100 are in closing inventory. So, the cost of goods sold made by T Ltd. Is $(9000-2100) = $ 6900.

So the total cost of goods sold by both companies is $(7200+6900)= $14100 out of which the cost of goods sold in relation to sale made by T Ltd. to outsider is $ 5520.

Therefore, the Cost of goods sold to be credited in Consolidation is = $(14100-5520) = $8580 and the remaining sales revenue of $(9000-8580) = $420 will be credited to Inventory.

(b) Non-current asset transfers

A motor vehicle was sold by U to T on 1 July 2007
The before tax gain recorded by U on the sale was $4,800

 

Details of the asset are as follows:

 

Original cost $29,000
Carrying amount at the date of transfer $19,000
Remaining useful life (in years) at the date of transfer: 4
All plant & equipment is depreciated on a straight line basis at $25%

 

Particulars Amount($)
CR Motor Vehicle 4800
DR Other Income 4800

The gain on sale of the vehicle by U Ltd. has been eliminated in the consolidation.

(c) Inter-group dividends

All dividends paid during the 2008 year were paid from post-acquisition profits:

 

Particulars Amount($)
DR Dividend Payable 35000
CR Dividend Receivables 35000
DR Dividend Revenue 73000
CR Final Dividend Declared 35000
CR Interim Dividend paid 38000

(d) Other inter-group transactions

On 30 June 2008, T made a loan to U. The loan is an interest only loan with an interest rate of 6.00%. Full repayment of the principal is due on 30 June 2010.

 

Particulars Amount($)
DR Loan from T Ltd. 53000
CR Loan to U Ltd. 53000

Since Loan is given on the last day of the accounts no interest is payable or receivable.

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