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When are profits realized in relation to inventory transfers within the group


Question 1 ABC Ltd was registered on 30 June 2019. The next day, the directors issued a prospectus inviting applicants for 400000 ordinary shares with an issue price of $2. The shares were payable in full on application. By 31 July, the company had received 500000 applications, together with the application monies. The directors allotted 400000 shares on 1 August and returned the money for additional applications. Required: (a) Prepare general journal entries to record the above data. (3.5 marks) (b) Enter the above data into ledgers.

Question 2

(a) What are the most common reasons for a corporation to reduce share capital? (2 marks) (b) What are the allowable methods of reducing share capital?

(c) Discuss the differences between share buyback and capital reduction. (2 marks)

(d) What are the different types of debts instruments discussed in your text book? (a) Explain the ways in which a company may expand by obtaining new assets. (1 mark) (b) Jamuna River Ltd purchased a parcel of assets and liabilities comprising a business directly from Lyneham Pty Ltd. The parcel, measured at net fair values, consisted of: Balance of Accounts: Plant 150,000 Land 240,000 Vehicles 120,000 Accounts receivable 30,000 Accounts payable (48000) Total 492000 Required: Prepare journal entries to record the acquisition by Jamuna River Ltd, assuming that: (i) The cost of acquisition was $600,000 cash. (ii)The cost of acquisition was $432,000 cash. On 1 July 2018, Sunflower Ltd acquired 90% of the share capital to gain control of Palm Ltd. The following intra-group transactions occurred during the year ending 30 June 2019. (i) During the 2018 - 2019 period, Sunflower Ltd sold inventory to Palm Ltd for $1600,000. Sunflower Ltd purchased this inventory at $1000,000. By 30 June 2019, Palm Ltd has sold 70% of that inventory to third party. (ii) Palm Ltd declared a final dividend of $1300, 000 from current year’s profits. (iii) Palm Ltd paid Sunflower Ltd, a fee for administrative services they provided of $40,000. (iv) Palm Ltd has an intra-group loan with Sunflower Ltd. Sunflower Ltd provided a loan of $10,000,000. The loan charges 4% interest annually. One half of the interest for the current year remains unpaid at 30 June 2019. (v) Palm Ltd sold a land to Sunflower Ltd for $560000. The land was purchased by Palm Ltd at $ 300000.


(a) Prepare the journal entries required to eliminate the intra-group transactions above.

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

(c) What are the rules for the elimination entry for intra-group transactions relating to dividend declared by the parent company and dividend declared by the subsidiary company?

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