Question
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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started