Ying Ltd owns all of the shares of Yang 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 2020. Assume an income tax rate of 30%.

Part C

In the 2018-19 period, Yang Ltd sold land to Ying Ltd at $150?000 above cost. The land is still held by Ying Ltd. (3 marks)

The related consolidation journal entries (CJEs) are as follows:

CJE #1: To eliminate the gain on the intercompany sale:

Gain on sale of land     150,000

        Land                              150,000

CJE #2: To eliminate income tax expense from unrealized gain on sale of land:

Deferred tax asset            45,000

      Income tax expense          45,000*

* (150,000 x 30% = 45,000)

Step-by-step explanation

The related consolidation journal entries (CJEs) are as follows:

CJE #1: To eliminate the gain on the intercompany sale:

Gain on sale of land     150,000

        Land                              150,000

CJE #2: To eliminate income tax expense from unrealized gain on sale of land:

Deferred tax asset            45,000

      Income tax expense          45,000*

* (150,000 x 30% = 45,000)

NOTE THAT THE FOLLOWING SCENARIOS ARE PRESUMTIONS OF THE TUTOR FOR ILLUSTRATION PURPOSES:

Yang Ltd sold land to Ying Ltd for $650?000. The cost of land recorded in the book of Yang Ltd is $500,000. The land is still held by Ying Ltd.

Assuming the land was sold on later year at 160,000 above the original carrying amount (before the intercompany sale) to outside customer:

The related journal entries (JEs) from the sale of land on the following year:

JE #1: To record sale of land to third party:

Proceeds on sale of land      660,000

       Land                                       500,000

       Gain                                         160,000*

* The gain on sale of land will be computed from the original carrying amount ($500,000) and not from the subsequent carrying amount ($650,000) from intercompany sale.

JE #2: To record income tax expense from sale of land:

Income tax expense       48,000

      Income tax liability           48,000**

**(160,000 x 30% = 48,000)