1. Harley Ltd owns 100% of Quinn Ltd.

During the financial year ending 30 June 2020, Harley Ltd sold inventory, originally costing $24 000, to Quinn Ltd for $30 000. Harley Ltd also sold inventory, originally costing $120 000, outside the group for $360 000.

Quinn Ltd sold inventory, originally costing $15 000, to Harley Ltd for $20 000. Quinn Ltd made no sales outside the group.

1. To eliminate intragroup transactions for the year, Quinn Ltd’s accountant processes the following entry in the general ledger of Quinn Ltd:

Dr Sales $20 000

Cr Cost of sales $20 000

Do you agree this treatment will eliminate intragroup sales of inventory for the year ending 30 June 2020? If so, why? If not, provide both an explanation of why not and the correct treatment.

2. Harley Ltd has sold 80% of the inventory it purchased from Quinn Ltd outside the group, while Quinn Ltd still has 40% of the inventory it purchased from Harley Ltd on hand. Tax rate is 30%.

1. Why does this information create an elimination entry for consolidation purposes at year end?

2. What is the consolidation/elimination entry at 30 June 2020?

Answer rating: 100% (QA)

A Do you agree this treatment will eliminate intragroup sales of inventory for the year ending 30 Ju... View the full answer