Question

Mungo Ltd acquired 100 percent interest in Barry Ltd for $1,000,000 seven years ago on 1 July 2008. At that date the capital and reserve of Barry Ltd were: Share capital $500,000 Retained earnings $400,000 At the date of acquisition, all assets were considered to be fairly valued. The following information relates to the financial year ended on 30 June 2015: ? During the year Mungo Ltd made total sales to Barry Ltd for $162,500, while Barry Ltd sold $130,000 in inventory to Mungo Ltd. ? The closing inventory of Mungo Ltd includes inventory acquired from Barry at a cost of $84,000. This inventory costed Mungo Ltd $70,000 to produce. ? The closing inventory of Barry Ltd includes inventory acquired from Mungo Ltd at a cost of $ 30,000. This costs Mungo Ltd $24,000 to produce. ? The opening inventory of inventory of Mungo Ltd as at 1 July 2014 included inventory acquired from Barry Ltd for $105,000 that had costs Barry Ltd $ 87,500 to produce. ? The management of Mungo Ltd believes that goodwill was impaired by $40,000 in previous years and $15,000 in current year. ? On 1 July 2014 Mungo ltd sold an item of plant to Barry Ltd for $150,000 when its carrying value in Mungo Ltd book was $200,000 (costs $300,000, accumulated depreciation $100,000). This plant has a remaining useful life of five (5) years form the date of sale. The group measures its property plants and equipment using a costs model. ? Barry Ltd paid $70,000 in management fees to mungo Ltd. ? The tax rate is 30 percent. Required: (a) Pass the necessary consolidation entry to eliminate the investment of Munga Ltd in Barry Ltd. (5 marks) (b) Pass the necessary entry to eliminate the intra-group transaction. (7 marks)

Answer 1