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During the year ended 30 June 2018, Acer Ltd sold inventory to its wholly owned subsidiary...

During the year ended 30 June 2018, Acer Ltd sold inventory to its wholly owned subsidiary Carlon Ltd for $50 000 cash. The items previously cost Acer Ltd $35 000. The inventory remains unsold by Carlon Ltd at the end of the period. The tax rate is 30%.

Explain in detail, line by line, the journal entry required to eliminate the intragroup transaction for the year ending 30 June 2018.

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Answer #1

The Parent Company must eliminate 100 % of unrealized profit on consolidation. The Inventory will therefore be carried in the group balance sheet at 35000. The Consolidated Profit and Loss will show the corresponding reduction in the profit of 15000.

The double entry on consolidation is as follow:

Particular

Dr

Cr.

Consolidated Revenue

50,000

   To Cost of Sales

35000

   To Inventory

15000

The Company shall also create deferred tax of $ 4500 ( 30 % of ( 50,000-35000) ).

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