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Questions and Answers
What must be eliminated during the consolidation process to maintain the integrity of consolidated financial statements?
What must be eliminated during the consolidation process to maintain the integrity of consolidated financial statements?
Which of the following is true regarding dividends in a consolidated financial statement?
Which of the following is true regarding dividends in a consolidated financial statement?
Which of the following indicates a need for consolidation adjustments regarding sales of goods?
Which of the following indicates a need for consolidation adjustments regarding sales of goods?
When will outstanding loan balances require adjustments in the consolidation process?
When will outstanding loan balances require adjustments in the consolidation process?
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What is the correct accounting treatment for unrealized profit in opening inventories from prior period sales?
What is the correct accounting treatment for unrealized profit in opening inventories from prior period sales?
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Which of the following entries would not be part of the intra-group services adjustment?
Which of the following entries would not be part of the intra-group services adjustment?
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What action is required for intercompany receivables and payables during consolidation?
What action is required for intercompany receivables and payables during consolidation?
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Which scenario would require a gain or loss adjustment during the consolidation process?
Which scenario would require a gain or loss adjustment during the consolidation process?
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What entry is made when transferring land at a gain during the current period?
What entry is made when transferring land at a gain during the current period?
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Which of the following occurs with the transfer of plant at a gain during the current period with excess depreciation?
Which of the following occurs with the transfer of plant at a gain during the current period with excess depreciation?
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What is a common treatment when transferring plant at a loss during the current period with under-depreciation?
What is a common treatment when transferring plant at a loss during the current period with under-depreciation?
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When transferring land at a gain from a prior period, which entry is needed for retained earnings?
When transferring land at a gain from a prior period, which entry is needed for retained earnings?
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Which entry is required for transferring plant at a gain during the prior period with excess depreciation?
Which entry is required for transferring plant at a gain during the prior period with excess depreciation?
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What is the primary effect of a deferred tax asset?
What is the primary effect of a deferred tax asset?
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In the event of a plant transfer at a loss during a prior period, what key entry is typically made?
In the event of a plant transfer at a loss during a prior period, what key entry is typically made?
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How does transferring an asset with under-depreciation create a deferred tax liability?
How does transferring an asset with under-depreciation create a deferred tax liability?
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Study Notes
Consolidation: Intragroup Transactions
- Consolidated financial statements combine a parent company and its subsidiaries into a single entity. Internal transactions are excluded.
- Adjustments for intragroup transactions ensure external transactions are the focus, aligning with the entity concept in consolidation.
- Internal transactions are fully eliminated.
Examples of Intragroup Transactions Requiring Adjustments
- Services: Management fees between group entities in the current period.
- Dividends: Received/payable by the parent company from a subsidiary.
- Loans: Outstanding loan balances between entities, including interest, at the end of the current period.
- Sales of Goods: Inter-entity sales in the current period, including any interest related to loans and unrealized profits in ending inventories.
- Unrealized Profit: Profit from prior-period inter-entity sales in opening inventories.
- Receivables and Payables: Outstanding balances between entities during the current period.
- Non-current Assets: Gain/loss on transfer or excess/under-depreciation of non-current assets between entities, in either the current or prior period.
Pro-Forma Worksheet Entries
-
Intra-group Services:
- Debit: Service Expense
- Credit: Service Revenue
-
Dividends:
-
Dividend Declared and Paid:
- Debit: Dividend Paid
- Credit: Dividend Revenue
-
Dividend Declared but Payable:
- Debit: Dividend Payable
- Credit: Dividend Receivable
- Debit: Dividend Revenue
- Credit: Dividend Declared
-
Dividend Declared and Paid:
-
Loans:
- Debit: Loan Payable
- Credit: Loan Receivable
-
Outstanding Debentures:
- Debit: Debentures Liability
- Credit: Investments in Debentures
-
Interest:
- Debit: Interest Expense
- Credit: Interest Revenue
-
Sales of Goods with unrealized profit
- Debit: Sales Revenue
- Credit: Cost of Sales
-
Sales of goods with unrealized profit in opening inventories
- Debit: Retained Earnings (opening)
- Credit: Cost of Sales
-
Outstanding Balances of Receivables and Payables:
- Debit: Accounts Payable
- Credit: Accounts Receivable
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Credit: Intercompany Receivable
- Debit: Intercompany Payables
-
Transfer or Land at a gain
- Gain on sale of land:
- Debit: Gain on Sale of Land
- Debit: Deferred Tax Asset
- Credit: Income Tax Expense
-
Or:
- Debit: Proceeds from Sale of Land
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Transfer of a plant at a gain
- Gain on Sale of Plant:
- Debit: Gain on Sale of Plant
- Debit: Deferred Tax Asset
- Credit: Income Tax Expense
- Accumulated Depreciation
-
Transfer of plant at a gain (during a prior period)
-
Transfer of Plant at a loss
- Loss on Sale:
- Credit: Plant (or Asset) Account
-
Transfer of plant at a loss during a prior period
- Deferred Tax Liability:
-
Deferred Tax Asset/Liability: A deferred tax asset occurs when future tax deductions exceed current asset worth-saving on taxes later. A deferred tax liability occurs when future tax obligations surpass current deductions-owing more tax later.
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Description
Test your knowledge on consolidating financial statements and the adjustment of intragroup transactions. This quiz focuses on various examples such as management fees, dividends, loans, and unrealized profits. Ensure you understand the principles behind eliminating internal transactions for accurate financial reporting.
