Question 1

Addison Ltd owns all of the share capital of Erin Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 31 December 2014. Tax rate is 30%.

1. In July 2014, Addison Ltd sells inventory to Erin Ltd for $15 000. This inventory had previously cost Addison Ltd $10 000, and it remains unsold by Erin Ltd at the end of the period.
2. All the inventory in (a) above is sold to Olivia Ltd, an external party, for $20 000 on 2 August 2014.
3. Half the inventory in (a) above is sold to Taylah Ltd, an external party, for $9000 on 22 August 2014. The remainder is still unsold at the end of the period.
4. Addison Ltd, in March 2014, sold inventory for $10000 that was transferred from Erin Ltd 3 years ago. It had originally cost Erin Ltd $6000, and was sold to Addison Ltd for $12 000.
5. Erin Ltd sold some land to Addison Ltd in April 2014. The land had originally cost Erin Ltd $25 000, but was sold to Addison Ltd for only $20 000. To help Addison Ltd pay for the land, Erin Ltd gave Addison Ltd an interest-free loan of $12 000, and the balance was paid in cash. Addison Ltd has as yet made no repayments on the loan.
6. On 1 January 2014, Addison Ltd sold a depreciable asset costing $10 000 to Erin Ltd for $12 000. Addison Ltd had not charged any depreciation on the asset before the sale. Both entities depreciate assets at 10% p.a. on cost.
7. On 1 January 2014, Addison Ltd sold an item of machinery to Erin Ltd for $6000. This item had cost Addison Ltd $4000. Addison Ltd regarded this item as inventory whereas Erin Ltd intended to use it as a non-current asset. Erin Ltd charges depreciation at the rate of 10% p.a. on cost.