(a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltdfor $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows: Sales Dr15 000 Cost of Sales Cr 13 000 Inventory Cr 2 000 Deferred Tax Asset Dr 300 Income Tax ExpenseCr 300 Required ) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry. (1) Determine the consolidation worksheet entries in the following year, assuming the inventory has been -sold, and explain the adjustments on a line-by-line basis.

(a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000. These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltdfor $8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate consolidation adjustment entries are as follows: Sales Dr15 000 Cost of Sales Cr 13 000 Inventory Cr 2 000 Deferred Tax Asset Dr 300 Income Tax ExpenseCr 300 Required ) Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis the correct adjustment entry. (1) Determine the consolidation worksheet entries in the following year, assuming the inventory has been -sold, and explain the adjustments on a line-by-line basis.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Question

(a) Jessica Ltd sold inventory during the current period to its wholly owned subsidiary, Amelie Ltd, for $15 000.
These items previously cost Jessica Ltd $12 000. Amelie Ltd subsequently sold half the items to Ningbo Ltdfor
$8000. The tax rate is 30%. The group accountant for Jessica Ltd, Li Chen, maintains that the appropriate
consolidation adjustment entries are as follows:
Sales
Dr15 000
Cost of Sales
Cr
13 000
Inventory
Cr
2 000
Deferred Tax Asset Dr
300
Income Tax ExpenseCr
300
Required
O Discuss whether the entries suggested by Li Chen are correct, explaining on a line-by-line basis
the correct adjustment entry.
(1) Determine the consolidation worksheet entries in the following year, assuming the inventory
has been -sold, and explain the adjustments on a line-by-line basis.
(b) On 1 July 2016 Liala Ltd sold an item of plant to Jordan Ltd for $450000 when its' carrying value in Liala Ltd book
was $600000 (costs $900000, accumulated depreciation $300000). This plant has a remaining useful life of five (5)
years form the date of sale. The group measures its property plants and equipment using a costs model. Tax rate
is 30 percent.
Required:
Pass the necessary entries on 30 June 2017 and 30 June 2018 to eliminate the intra-group
transfer of equipment.

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