Transaction 1

Trunk Ltd single entity financial statements

$000 $000
Dr Management fee expense 100
Cr Accrued fees payable 100

Tree Ltd single entity financial statements

$000 $000
Dr Accrued fees receivable 100
Cr Management fee revenue 100

Consolidation adjusting journal entries for the year ended 30 June 20X8
$000 $000
Dr Accrued fees payable 100
Cr Management fee expense 100
Explanation: This is an intragroup transaction for the balance of management fees due from
Truck Ltd to Tree Ltd. It should be excluded from consolidated financial statements
because it is not a transaction between the Tree Ltd Group and an external party.

$000 $000
Dr Management fee revenue 100
Cr Accrued fees receivable 100
Explanation: This is an intragroup transaction for the balance of management fees due to
Tree Ltd from Tree Ltd. It should be excluded from consolidated financial statements
because it is not a transaction between the Tree Ltd Group and an external party.
Transaction 2

Branch Ltd single entity financial statements

$000 $000
Dr Loan receivable 1,000
Cr Cash 1,000

Dr Accrued interest receivable 35

Cr Interest revenue 35

Tree Ltd single entity financial statements

$000 $000
Dr Cash 1,000
Cr Loan payable 1,000

Dr Interest expense 35
Cr Accrued interest payable 35

Consolidation adjusting journal entries for the year ended 30 June 20X8
$000 $000
Dr Loan payable 1,000
Cr Loan receivable 1,000
Explanation: This is an intragroup transaction for the borrowing and lending transaction
between Branch Ltd and Tree Ltd. It should be excluded from consolidated financial
statements because it an internal financing transaction for the Tree Ltd Group.

$000 $000
Dr Interest revenue 35
Cr Interest expense 35

Explanation: This is an intragroup transaction for the finance costs for the borrowing and
and lending transaction between Branch Ltd and Tree Ltd. It should be excluded from
consolidated financial statements because it is an internal financing transaction for the
Tree Ltd Group.

$000 $000
Dr Accrued interest payable 35
Cr Accrued interest receivable 35

Explanation: This is an intragroup transaction for the outstanding finance costs payable
balances between Branch Ltd and Tree Ltd at year end. It should be excluded from
consolidated financial statements because it is part of the internal financing arrangements
for the Tree Ltd Group.
Transaction 3

Tree Ltd single entity financial statements

$ $
Dr Inventories (asset) 10,000
Cr Cash 10,000

Leaf Ltd single entity financial statements

$ $
Dr Cash 10,000
Cr Sales revenue 10,000

Dr Cost of goods sold 8,000

Cr Inventories (asset) 8,000
($10,000/1.25 = $8,000 cost of manufacture)

Consolidation adjusting journal entries for the year ended 30 June 20X8
$ $
Dr Sales revenue 10,000
Cr Cost of goods sold 10,000
Explanation: This represents the intragroup inventory transactions
between Tree Ltd and Leaf Ltd. It is excluded from consolidated financial
statements because it an internal trading transaction for the Tree Ltd Group.

$ $
Dr Cost of goods sold 2,000
Cr Inventories (asset) 2,000
($10,000 - $8,000 = $2,000)
Explanation: This the unrealised profit for the intragroup inventory transactions
between Tree Ltd and Leaf Ltd. It is excluded from consolidated financial
statements because it an internal trading transaction for the Tree Ltd Group and
the profit is yet to be realised. This will occur when the inventory is sold to external
customers.

$ $
Dr Deferred tax asset 600
Cr Tax expense 600
(Unrealised profit $2,000 x 30% tax rate = $600)
Explanation: This the tax on the unrealised profit for the intragroup inventory
transactions between Tree Ltd and Leaf Ltd. It is removed from tax expense
because the related profit is not yet realised and the associated tax is regarded as a
prepayment of tax until the profit is realised. This will occur when the inventory is sold to
parties external to the the Tree Ltd Group.
Transaction 4

Purchasing entities single entity financial statements

$000 $000
Dr Cost of goods sold 5,000
Cr Cash 5,000

Selling entities single entity financial statements

$000 $000
Dr Cash 5,000
Cr Sales revenue 5,000

Consolidation adjusting journal entry for the year ended 30 June 20X8
$000 $000
Dr Sales revenue 5,000
Cr Cost of good sold 5,000
Explanation: These transactions are part of the Tree Ltd Group internal
trading activities and are eliminated because they have not been undertaken
with external parties. There is no tax effect because the consolidated
net assets of the group have not changed.
Transaction 5

Leaf Ltd single entity financial statements

$ $
Dr Inventories (asset) 39,000
Cr Cash 39,000
($30,000 x 1.3 = $39,000)

Truck Ltd single entity financial statements

$ $
Dr Cash 39,000
Cr Sales revenue 39,000

Dr Cost of goods sold 30,000

Cr Inventories (asset) 30,000

Consolidation adjusting journal entries for the year ended 30 June 20X8
$ $
Dr Sales revenue 39,000
Cr Cost of goods sold 39,000
Explanation: This represents the intragroup inventory transactions
between Leaf Ltd and Truck Ltd. It is excluded from consolidated financial
statements because it an internal trading transaction, that is subsidiary to
subsidiary, for the Tree Ltd Group.

$ $
Dr Cost of goods sold 9,000
Cr Inventories (asset) 9,000
($39,000 - $30,000 = $9,000)
Explanation: This the unrealised profit for the intragroup inventory transactions
between Leaf Ltd and Truck Ltd. It is excluded from consolidated financial
statements because it an internal trading transaction for the Tree Ltd Group and
the profit is yet to be realised. This will occur when the inventory is sold to external
customers.

$ $
Dr Deferred tax asset 2,700
Cr Tax expense 2,700
(Unrealised profit $9,000 x 30% tax rate = $2,700)
Explanation: This the tax on the unrealised profit for the intragroup inventory
transactions between Leaf Ltd and Truck Ltd. It is removed from tax expense
because the related profit is not yet realised and the associated tax is regarded as a
prepayment of tax until the profit is realised. This will occur when the inventory is sold to
parties external to the the Tree Ltd Group.