Hi
I am stuck at ths question below:
1. Cohort 6/2002
Air has soldd goods worth $3m to cohort since acquisition and mde a profit of $1m on the transaction. the inventory of these goods recorded in Cohorts SOFP at the year end 31.5.2002 was $1.8m.
The solutions states that the intra group transaction has resulted in an unrealised profit of $0.6m, I dont know why to calculate the 0.6m and why has it resulted in a temporary difference?
2. The balance on the retained earnings of Air at acqusition was $2m. the directors of Cohort have decided that, during the 3yrs to date that they intend to list the shares of the company, they will realise retained earnings through dividend payments from subsidiary amounting to $500,000per year. Tax is payable on any remittence or dividends and no dividends have been declared for the current year.tax at 30% for cohort and 35% for public company.
Is there a temporary difference of $500,000*30% =150,000 for each year shown? how will it be shown on the accounts? is it
DR 500 dividends
CR 150 tax
CR 350 Retained earnings
thanks for your time
In the solutions
Ask the Tutor ACCA SBR
income tax ias 12
12y ago#1"In the solutions"?
If goods were transferred at $3m and there are $1.8m still in inventory, that's 60% of $3.
Profit recognised was $1m
60% of $1m is $600,000
It's a temporary difference because, next year when the goods are sold, the difference will "unwind"
When the dividend is declared, in the books of Air, the entry will be debit retained earnings and credit liabilities
In the records of Cohort, the entry will be debit receivables and credit investment income
When the dividend is actually paid, in the records of Air, the entry will be debit liabilities and credit cash.
In the records of Cohort, the entry will be debit cash and credit receivables
So long as no dividend has yet been declared, I don't see any tax implication. Maybe "in the solutions...."?
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