Alice Ltd owns all of the shares of Springs Ltd. The following intragroup transactions took place between the two companies:

1. In February 2019, Alice Ltd sold inventory to Springs Ltd for $12 000, at a mark-up of 20% on cost. One-quarter of this inventory remained unsold by Springs Ltd at 30 June 2019.
2. On 1 July 2019, Alice Ltd sold an item of machinery to Springs Ltd for $12 000. This item had cost Alice Ltd $7 500. Alice Ltd regarded this item as inventory whereas Springs Ltd intended to use it as a non-current asset. Springs Ltd charges depreciation at the rate of 10% p.a. on cost.
3. Springs Ltd sold land to Alice Ltd in December 2019. The land had originally cost Springs Ltd $25 500, but was sold to Alice Ltd for only $21 000. To help Alice Ltd pay for the land, Springs Ltd gave Alice Ltd an interest-free loan of $13 000, and the balance was paid in cash. Alice Ltd has made no repayments on the loan.
4. On 1 July 2019, Alice Ltd sold an item of plant costing $19 000 to Springs Ltd for $23 000. Alice Ltd had not charged any depreciation on the plant before the sale. Both entities depreciate assets at 10% p.a. on cost.
5. On 1 January 2019, Alice Ltd sold inventory costing $8 100 to Springs Ltd at a transfer price of $10 500. On 1 September 2019, Springs Ltd sold half these items of inventory back to Alice Ltd, receiving $4 050 from Alice Ltd. Of the remaining inventory kept by Springs Ltd, half was sold in January 2019 outside the group at a loss of $400.
6. On 1 January 2019, Springs Ltd sold a new tractor to Alice Ltd for $32 000. This had cost Springs Ltd $27 000 on that day. Both entities charged depreciation at the rate of 10% p.a. on cost.

In relation to the above intragroup transactions prepare the Consolidation Adjusting Journal Entries for the consolidated financial statements as at 30 June 2020. Assume an income tax rate of 30%.

1. Adjust for the earlier sale by reversing the sale proceeds, calculate the cost of sales and reverse that. Calculate the reduction in the cost of sales for the subsequent sale of the inventory outside of the group, reduce the income tax for the earlier sale. Reduce the cost of the sales for the sale of the remaining inventory outside the group and increase the income tax accordingly. (6 marks)
2. Adjust for the sale by eliminating the sale and the profit and reducing the value of the asset, reducing the income tax expense, the depreciation and the tax consequences of the depreciation reduction. (9 marks)
3. Adjust for the sale by eliminating the loss and adjusting for the increase in tax, increasing the value of the asset and deferred tax consequences. Cancel the loan. (8 marks)
4. Adjust for the sale by eliminating the gain and reducing the value of the asset, reducing the income tax expense, the depreciation and the tax consequences of the depreciation reduction. (9 marks)
5. Adjust for the earlier sale by reversing the sale proceeds and the cost of sales, and the reduction of income tax because of this transfer in the retained earnings. Eliminate the sale proceeds and the cost of sales in the sale back and calculate the reduction in the cost of sales for the subsequent sale of the inventory outside of the group, adjust the over value in the retained inventory and increase the income tax accordingly. (11 marks)
6. Adjust for the earlier sale by eliminating the gain and adjusting for the reduction in tax, reducing the value of the asset and deferred tax consequences, reducing the depreciation and the tax consequences of the depreciation reduction over the years. (12 marks)