On 1 July 2015, Richard Ltd acquired all the issued shares of Elizabeth Ltd. The following information relates to the inter entity transactions that have occurred between Richard and Elizabeth to June 2017. Inter entity Transactions (a) Richard Ltd sells certain raw materials to Elizabeth Ltd to be used in its manufacturing process. At 1 July 2016, Elizabeth Ltd held inventory sold to it by Richard Ltd in the previous year at a profit of $600. During the 2016–17 year, Richard Ltd sold inventory to Elizabeth Ltd in the current year for $21 000. None of this was on hand at 30 June 2017. (b) Elizabeth Ltd also sells items of inventory to Richard Ltd. During the 2016–17 year, Elizabeth Ltd sold goods to Richard Ltd for $4500. At 30 June 2017, inventory which had been sold to Richard Ltd at a profit of $300 was still on hand in Richard Ltd’s inventory. (c) On 1 July 2016, Elizabeth Ltd sold an item of plant to Richard Ltd for $15 000. This plant had a carrying amount in the records of Elizabeth Ltd of $14 000 at time of sale. This type of plant is depreciated at 10% p.a. on cost. (d) On 1 January 2016, Richard Ltd sold an item of inventory to Elizabeth Ltd for $18 000. The inventory had cost Richard Ltd $16 000. This item was classified by Elizabeth Ltd as plant. Plant of this type is depreciated by Elizabeth Ltd at 20% p.a. (e) On 1 March 2017, Elizabeth Ltd sold an item of plant to Richard Ltd. Whereas Elizabeth Ltd classified this as plant, Richard Ltd classified it as inventory. The sales price was $9000 which included a profit to Elizabeth Ltd of $1500. Richard Ltd sold this to another entity on 31 March for $9900. (f) The tax rate is 30%. Required: Prepare consolidation journal entries required at June 30 2017 to eliminate the effects of inter entity transactions between Richard and Elizabeth. Note: BCVR and preacquisition entries are NOT required for this question.

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The following entries to be passed in the books of Richard Ltd and Elizabeth Ltd as on 30th June 2017 a Elimination of Profit on sale of inventory to ... View the full answer