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(b) When are profits realised in relation to inventory transfers within the group?

(b) When are profits realised in relation to inventory transfers within the group?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question 6 (a) Zealandia Itd is the parent company holding 90 percent interest in the Oceania Itd. For each of the following independent cases, provide adjusting entries necessary to eliminate the effect of intragroup transaction at 30 June 2020: (i) During the period Oceania Ltd sold inventory to Zealandia Ltd at a price of $240000. The cost of the inventory to Oceania Itd was $168000. Ninety percent (90%) of the inventory has been sold by Zealandia Ltd to outside third parties by the end of the period. . (ii) During the period, Oceania borrowed $1500000 from Zealandia Ltd which is still unpaid by the end of the period. During the period Oceania Ltd has paid $30000 interest to Zealandia Ltd for the borrowing. (iii) At the end of the year, Oceania Ltd declared and paid a dividend amounting to $180000. Zeaiandia Ltd has declared and paid a dividend of $150000. . (iv) One year ago, at 1 July 2019, Oceania Ltd sold equipment to Zealandia Ltd for a price of $810000. At the time of the sale, the carrying value of the equipment in the Oceania Ltd.'s account was $450000 and the accumulated depreciation was $450000. Zealandia is depreciating the equipment over a further 5 years period. The expected salvage value is zero. Assume a corporate tax rate of 30 percent. (v) During the period Zealandia has paid a consultancy fee to Oceania Ltd of $75000. Zealandia has provided a management service to Oceania Ltd for $80000 which ahs not been paid as yet by Oceania Ltd." (b) When are profits realised in relation to inventory transfers within the group?
Transcribed Image Text:Question 6 (a) Zealandia Itd is the parent company holding 90 percent interest in the Oceania Itd. For each of the following independent cases, provide adjusting entries necessary to eliminate the effect of intragroup transaction at 30 June 2020: (i) During the period Oceania Ltd sold inventory to Zealandia Ltd at a price of $240000. The cost of the inventory to Oceania Itd was $168000. Ninety percent (90%) of the inventory has been sold by Zealandia Ltd to outside third parties by the end of the period. . (ii) During the period, Oceania borrowed $1500000 from Zealandia Ltd which is still unpaid by the end of the period. During the period Oceania Ltd has paid $30000 interest to Zealandia Ltd for the borrowing. (iii) At the end of the year, Oceania Ltd declared and paid a dividend amounting to $180000. Zeaiandia Ltd has declared and paid a dividend of $150000. . (iv) One year ago, at 1 July 2019, Oceania Ltd sold equipment to Zealandia Ltd for a price of $810000. At the time of the sale, the carrying value of the equipment in the Oceania Ltd.'s account was $450000 and the accumulated depreciation was $450000. Zealandia is depreciating the equipment over a further 5 years period. The expected salvage value is zero. Assume a corporate tax rate of 30 percent. (v) During the period Zealandia has paid a consultancy fee to Oceania Ltd of $75000. Zealandia has provided a management service to Oceania Ltd for $80000 which ahs not been paid as yet by Oceania Ltd." (b) When are profits realised in relation to inventory transfers within the group?
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