Explain how unrealised profit on intra-group transactions

Assignment Help Financial Accounting

Reference no: EM131289325

On 1 July 2015, Summer Ltd acquired 80% of the share capital to gain control of Winter Ltd. The following intra-group transactions occurred during the year ending 30 June 2016 1)Winter Ltd paid an interim dividend of $150,000 to its shareholders from current year’s profits. 2)Winter Ltd declared a final dividend of $220,000 to its shareholders from current year’s profits. 3)During the 2015 - 2016 period, Summer Ltd sold inventory to Winter Ltd for $350,000. This inventory had previously cost Summer Ltd $300,000. At 30 June 2016, 25% of that inventory remained on hand with Winter Ltd. 4)Winter Ltd paid Summer Ltd, a management fee for administrative services they provided of $25,000. 5)Winter Ltd has an intra-group loan with Summer Ltd (Summer Ltd provided loan) of $2,000,000. The loan charges 5% interest annually. The interest for the current year remains unpaid at 30 June 2016. 6)Winter Ltd performed consulting services for Summer Ltd for which Winter Ltd received revenue of $250,000. Half of this amount remains unpaid at year end. a)Prepare the journal entries required to eliminate the intra-group transactions above. b) Explain how the unrealised profit on intra-group transactions is dealt with on consolidation.

Reference no: EM131289325

Questions Cloud

Social trends in corporate taxation : Current social trends in corporate taxation have a tremendous impact on how corporations run their business activities. For instance, tax liabilities will affect where a corporation runs its activities—in the United States or in a foreign country—and..

Describe the factors that constitute the fraud triangle : What is information overload? How does it affect decision-making. Describe the factors that constitute the fraud triangle. Why is it important to auditors. Why are the computer ethics issues of privacy, security, and property ownership of interest to..

List the four broad objectives of internal control system : Name the five characteristics of information? List the four broad objectives of the internal control system. In System Controls, confidentiality of data needs to be protected. How can Confidentiality be achieved.

What are the advantages of custom software : What are the advantages of custom software. Explain briefly the three types of anomalies associated with database tables that have not been normalized. What are the characteristics of a properly designed relational database table

Explain how unrealised profit on intra-group transactions : On 1 July 2015, Summer Ltd acquired 80% of the share capital to gain control of Winter Ltd. The following intra-group transactions occurred during the year ending 30 June 2016. Winter Ltd paid an interim dividend of $150,000 to its shareholders from ..

What are the example of anomalie of insertion and deletion : Discuss important asset accounts, liability accounts and equity accounts. Explain the nature, economic substance, and advantages of lease transactions. Describe the accounting criteria and procedures for capitalizing leases by the lessee. Contrast th..

One type of fraud is embezzlement : One type of Fraud is embezzlement (the fraudulent conversion of property by a person in possession of that property where the possession was obtained pursuant to a trust relationship). Annually, Marquet International issues the Marquet Report on Embe..

Potential threats to auditor independence and recommend : Imagine that you work for an audit firm and the firm selected you to assess its auditor independence and the potential threats to the firm. Determine at least two (2) potential threats to auditor independence and recommend one (1) strategy for the fi..

Journal entry-using the effective interest method : On January 1, 2016, for $17.8 million, Cenotaph Company purchased 8% bonds, dated January 1, 2016, with a face amount of $19.8 million. For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and Dece..

User Account

All Pages