Case 3: Intragroup transactions

Kingco Ltd owns all of the shares of Bombee Ltd. In relation to the following intragroup transactions, all parts of which are independent unless specified, prepare the consolidation worksheet adjusting entries for preparation of the consolidated financial statements as at 30 June 2019. Assume an income tax rate of 30%.

(a) On 1 January 2018, Kingco Ltd sold inventory costing $6000 to Bombee Ltd at a transfer price of $8000. On 1 September 2018, Bombee Ltd sold half these items of inventory back to Kingco Ltd, receiving $3000 from Kingco Ltd. Of the remaining inventory kept by Bombee Ltd, half was sold in January 2019 to Goanna Ltd at a loss of $200.

(b) On 1 January 2019, Bombee Ltd sold an item of plant to Kingco Ltd for $2000. Immediately before the sale, Bombee Ltd had the item of plant on its accounts for $3000. Bombee Ltd depreciated items at 5% p.a. on the diminishing balance and Kingco Ltd used the straight-line method over 10 years.

(c) On 1 July 2018, Kingco Ltd sold a motor vehicle to Bombee Ltd for $12 000. This had a carrying amount to Kingco Ltd of $9600. Both entities depreciate motor vehicles at a rate of 10% p.a. on cost.

(d) During the 2017–18 period, Kingco Ltd sold inventory to Bombee Ltd for $9000, recording a before-tax profit of $1800. Half this inventory was unsold by Bombee Ltd at 30 June 2018.

(e) Bombee Ltd sells second-hand machinery. Kingco Ltd sold one of its depreciable assets (original cost $80 000, accumulated depreciation $64 000) to Bombee Ltd for $10 000 on 1 January 2019. Bombee Ltd had not resold the item by 30 June 2019.

(f) On 1 May 2019, Bombee Ltd sold inventory costing $300 to Kingco Ltd for $360 on credit. On 30 June 2019, only half of these goods had been sold by Kingco Ltd, but Kingco Ltd had paid $280 back to Bombee Ltd.