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Questions and Answers
What is recognized in accounting when land is transferred at a gain during the current period?
What is recognized in accounting when land is transferred at a gain during the current period?
- Gain on Sale of Land DR (correct)
- Accumulated Depreciation CR
- Retained Earnings (opening) CR
- Deferred Tax Liability DR
Which account do you debit when transferring plant at a gain during the current period with excess depreciation?
Which account do you debit when transferring plant at a gain during the current period with excess depreciation?
- Retained Earnings
- Plant at Cost
- Gain on Sale of Plant (correct)
- Deferred Tax Asset
In the case of a loss on the sale of plant due to under-depreciation, which entry is required?
In the case of a loss on the sale of plant due to under-depreciation, which entry is required?
- Impairment Loss CR
- Plant DR (correct)
- Deferred Tax Asset CR
- Retained Earnings DR
During the prior period, what must be done when land is sold at a gain but the asset is still on hand?
During the prior period, what must be done when land is sold at a gain but the asset is still on hand?
When transferring plant at a loss during the prior period with excess depreciation, which is NOT part of the necessary journal entries?
When transferring plant at a loss during the prior period with excess depreciation, which is NOT part of the necessary journal entries?
What characterizes a deferred tax asset?
What characterizes a deferred tax asset?
Which entry correctly reflects the excess depreciation adjustment when transferring plant with a recognized gain?
Which entry correctly reflects the excess depreciation adjustment when transferring plant with a recognized gain?
What is an example of a deferred tax liability?
What is an example of a deferred tax liability?
What is the main purpose of consolidated financial statements?
What is the main purpose of consolidated financial statements?
What does full elimination of internal transactions in consolidation adjustments require?
What does full elimination of internal transactions in consolidation adjustments require?
In the context of consolidation, which of the following transactions would typically require an adjustment?
In the context of consolidation, which of the following transactions would typically require an adjustment?
Which entry is correct for recording undistributed dividends declared in the current period?
Which entry is correct for recording undistributed dividends declared in the current period?
In accounting for unrealized profits in inventories, which of the following must be adjusted if goods were sold to a subsidiary?
In accounting for unrealized profits in inventories, which of the following must be adjusted if goods were sold to a subsidiary?
Which account is debited when recording outstanding balances of receivables and payables from the sale of goods?
Which account is debited when recording outstanding balances of receivables and payables from the sale of goods?
What is the adjustment needed for a gain on the transfer of a non-current asset between group entities?
What is the adjustment needed for a gain on the transfer of a non-current asset between group entities?
Which of the following is NOT a characteristic of consolidation adjustments for intragroup transactions?
Which of the following is NOT a characteristic of consolidation adjustments for intragroup transactions?
Flashcards
Intragroup transactions
Intragroup transactions
Internal transactions between companies that are part of the same group (parent and subsidiaries).
Consolidated financial statements
Consolidated financial statements
Combined financial statements of a parent company and its subsidiaries, presented as one entity.
Consolidation adjustments
Consolidation adjustments
Modifications to consolidated statements to eliminate intragroup transactions.
Intra-group services
Intra-group services
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Dividend Payment (Current)
Dividend Payment (Current)
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Dividend Payable/Receivable
Dividend Payable/Receivable
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Intercompany Sales
Intercompany Sales
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Unrealized Profit
Unrealized Profit
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Gain on Sale of Land
Gain on Sale of Land
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Deferred Tax Asset
Deferred Tax Asset
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Gain on Sale of Plant
Gain on Sale of Plant
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Plant (Accounting)
Plant (Accounting)
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Deferred Tax Liability
Deferred Tax Liability
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Loss on Sale
Loss on Sale
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Transfer of Land (Prior Period)
Transfer of Land (Prior Period)
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Retained Earnings (Opening)
Retained Earnings (Opening)
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Study Notes
Consolidation: Intragroup Transactions
- Consolidated financial statements show the parent company and subsidiaries as a single entity.
- These statements exclude internal transactions, focusing on external dealings.
- Adjustments for intragroup transactions ensure consistency with the entity concept.
- This concept views the entire group as combined net assets of parent and subsidiaries.
- Internal transactions must be fully eliminated.
Examples of Intragroup Transactions Requiring Adjustments
- Services: Management fees between group entities in the current period.
- Dividends: Dividends received or payable between parent entities and subsidiaries.
- Loans: Outstanding loan balances between entities at period-end, including interest for the current period.
- Sales of Goods: Sales of goods between entities in the current period, including any interest or unrealized profits in ending inventories.
- Unrealized Profits: Unrealized profits in opening inventories from prior period sales.
- Receivables/Payables: Outstanding receivables and payables between entities during the current period.
- Non-current Asset Transfers: Gain or loss on transfer of non-current assets between entities, including excess or under-depreciation adjustments.
Pro-forma Worksheet Entries
- Intra-group Services: Debit Service Expense, Credit Service Revenue.
- Dividends (Declared and Paid): Debit Dividend Paid, Credit Dividend Revenue.
- Dividends (Declared and Payable): Debit Dividend Payable, Credit Dividend Receivable, further Credit Dividend Revenue.
- Outstanding Loans: Debit Loan Payable, Credit Loan Receivable.
- Outstanding Debentures: Debit Debentures Liability, Credit Investments in Debentures. Interest related: Debit to Interest Expense, Credit to Interest Revenue.
- Sales of goods (current-period): Debit Cost of Sales, Credit Sales Revenue. Any unrealized profit in the ending inventory has to be reported separately.
- Sales of goods (previous period): Adjustments for unrealized profit in opening inventories from prior period sales.
- Receivables/Payables: Adjustments for accounts payable/receivable. This impacts intercompany transactions.
Assets and Deferred Tax
- A deferred tax asset occurs when future tax deductions exceed current asset worth, leading to tax savings later.
- Conversely, a deferred tax liability happens when current asset worth is less than future tax deductions, resulting in future tax obligations.
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