Reference no: EM132714742
Question -
A. NZ IFRS 10 defines the parent-subsidiary relationship in terms of control rather than majority ownership. Write down one advantage and one disadvantage of control as the basis for parent-subsidiary relationship.
B. Give an example to illustrate how consolidation mitigates financial reporting abuses by the parent.
C. Q Ltd owns all the share capital of R Ltd. For each of the following intragroup transactions, assume that the consolidation process is being undertaken at 30 June 20X1, and that an income tax rate of 30% applies. The two transactions are independent.
a. On 1 January 20X1, Q Ltd sold an item of plant to R Ltd for $1000. Immediately before the sale, Q Ltd had the item of plant on its accounts for $1500. Q Ltd depreciated items at 5% p.a. on the diminishing balance and R Ltd used the straight-line method over 10 years.
b. On 1 May 20X1, R Ltd sold inventory costing $200 to Q Ltd for $400 on credit. On 30 June 20X1, only half of these goods had been sold by Q Ltd, but Q Ltd had paid $300 back to R Ltd.
Required - Prepare the consolidation worksheet adjustment entries for these transactions.
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