Question 3

a) Liala Ltd acquired all the issued shares of Jordan Ltd on 1 January 2015. The following transactions occurred between the two entities:

- On 1 June 2016, Liala Ltd sold inventory to Jordan Ltd for $12,000, this inventory previously costed Liala Ltd $10,000. By 30 June 2016, Jordan Ltd had sold 20% of this inventory to other entities for $3,000. The other 80% was all sold to external entities by 30 June 2017 for $13,000.

- During the 2016-17 period, Jordan Ltd sold inventory to Liala Ltd for $6,000, this being at cost plus 20% mark-up. Of this inventory, 20 % remained on hand in Liala Ltd at 30 June 2017. The tax rate is 30%.

Required:

(i) Prepare the consolidation worksheet entries for Liala Ltd at 30 June 2017 in relation to the intragroup transfers of inventory.

(ii) Compute the amount of cost of goods sold to be reported in the consolidated income statement for 2017 relating to the relevant intra-group sales.

b) On 1 July 2016, Liala ltd sold an item of plant to Jordan Ltd Ltd for $150,000 when its carrying value in Liala Ltd book was $200,000 (costs $300,000, accumulated depreciation $100,000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and equipment using a costs model. Tax rate is 30 percent.

Required: Prepare the necessary journal entries in 30 June 2017 to eliminate the intra-group transfer of equipment.