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Question 5 20 Marks PART A ABC Ltd owns 100 per cent of the shares of XYZ Ltd acquired on 1 July 2019 for $350,000
Question 5 20 Marks PART A ABC Ltd owns 100 per cent of the shares of XYZ Ltd acquired on 1 July 2019 for $350,000 when the shareholders' funds of XYZ Ltd are: Share capital $250,000 Retained earnings $180,000 $430,000 All assets of XYZ Ltd are stated at fair value on the acquisition date. During the 2020 financial year, XYZ Ltd sells inventory to ABC Ltd at a sales price of $70,000. The inventory cost XYZ Ltd $50,000 to produce. 50% inventory is still on hand at the year end. XYZ Ltd borrows $100 000 from ABC Ltd on 1 July 2019 with an interest rate of 5% per annum. The loan is for 3 years. XYZ Ltd pays $30,000 dividends to ABC Ltd. The tax rate is 30 per cent. Required: Show the relevant consolidated journal entries for the year ended 30 June 2020 (including tax effects where relevant). 16 Marks PART B Do you think that there are differences between the adjusting entries and non-adjusting entries? If so, identify the differences and provide one example for each. 4 Marks [16+4= 20 Marks]
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