Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On 1 July 2018, Sunflower Ltd acquired 90% of the share capital to gain control of Palm Ltd. The following intra-group transactions occurred during the

On 1 July 2018, Sunflower Ltd acquired 90% of the share capital to gain control of Palm Ltd. The following intra-group transactions occurred during the year ending 30 June 2019. (i) During the 2018/2019 period, Sunflower Ltd sold inventory to Palm Ltd for $1,600,000. Sunflower Ltd purchased this inventory at $1,000,000. By 30 June 2019, Palm Ltd had sold 70% of that inventory to a third party. (ii) Palm Ltd declared a final dividend of $1,300, 000 from current year's profits. (iii) Palm Ltd paid Sunflower Ltd a fee for administrative services they provided of $40,000. (iv) Palm Ltd has an intra-group loan with Sunflower Ltd. Sunflower Ltd provided a loan of $10,000,000. The loan charges 4% interest annually. One half of the interest for the current year remains unpaid as at 30 June 2019. (v) Palm Ltd sold land to Sunflower Ltd for $560,000. The land was purchased by Palm Ltd at $300,000. Required: (a) Prepare the journal entries required to eliminate the intra-group transactions above. (5 marks) (b) When are profits realised in relation to inventory transfers within the group? (1 mark) (c) What are the rules for the elimination entry for intra-group transactions relating to dividends declared by the parent company and dividends declared by the subsidiary company? (1 mark)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Intermediate Accounting

Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas

10th edition

1260481956, 1260310175, 978-1260481952

More Books

Students also viewed these Accounting questions

Question

What are the eight types of intelligence? (p. 65)

Answered: 1 week ago

Question

13. Give four examples of psychological Maginot lines.

Answered: 1 week ago