Question 2:Consolidations 2(25 marks)

(a)Cook Ltd owns all of the share capital of James Ltd. The income tax rate is 30%. The following transactions took place during the periods ended 30 June 2019 or 30 June 2020.

(i)In January 2020, Cook Ltd sells inventories to James Ltd for $10 000 in cash. These inventories had previously cost Cook Ltd $7 000, and remain unsold by James Ltd at the end of the period.(3 marks)

(ii)In February 2020, Cook Ltd sells inventories to James Ltd for $15 000 in cash. These inventories had previously cost Cook Ltd $12 000, and are on-sold externally on 2 April 2020.(2 marks)

(iii)In February 2020, James Ltd sells inventories to Cook Ltd for $22 000 in cash (original cost to James Ltd was $16 000) and one quarter (25%) are on-sold externally by 30 June 2020.(3 marks)

(iv)In March 2020, Cook Ltd sold inventories for $10 000 to Zara Ltd, an external entity. These inventories were transferred from James Ltd on 1 June 2019. The inventories had originally cost James Ltd $8000, and were sold to Cook Ltd for $12 000.(2 marks)