Question 2

(a) Identify and discuss the three elements of control in determining whether to prepare consolidated financial statements.

(6 marks)

(b) Dingo Ltd owns all of the shares of Bilby Ltd. On 1 May 2020, Bilby Ltd sold inventory costing $300 to Dingo Ltd for $360 on credit. On 30 June 2020, only half of these goods had been sold by Dingo Ltd, but Dingo Ltd had paid $280 back to Bilby Ltd. The tax rate is 30%. The adjusting consolidation entries at 30 June 2020 were:

Sales revenue Dr 360

Cost of sales Cr 330

Inventory Cr 30

Deferred tax asset Dr 9

Income tax expense Cr 9

Accounts payable Dr 80

Accounts receivable Cr 80

Required:

Explain the rationale behind the adjustments to each of the accounts.

(11 marks)