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How to account intragroup trading under Business combination

10 March 2009 2,006 views 5 Comments

Dear all,

I need clarification with regard to how to treat an intra group trading b/n parent and subsidiaries group accounts during preparation of consolidated statement of financial position as well as income statement. I always confuse and need a clear guideline on how to treat it.

For instance

the subsidiary sold to the parent in the post acquisition period for an amount of $8million. The subsidiary made a mark up on cost of 40% on the sales. The Parent sold $5.2 million(at cost to the parent) of these goods. How should I adjust this situation when preparing consolidated Statement of Financial Position.

I need your advice and where can I find the standard which clearly show treatment of intra group trading.

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5 Comments »

  • admin (author) said:

    Message from IFRSLIST member

    Hi

    This part of your question is not clear

    The Parent sold $5.2 million(at cost to the parent) of these goods at what mark up? to whom ? and what is balance at the balance sheet date?

    Sundar

    # 11 March 2009 at 9:22 am
  • admin (author) said:

    Message from Sandeep

    Hi setota

    I would treat it as unrealised profit post acq.

    During consolidation u might need to adjust for portion of unrelaised profit which is 0.8m (8-5.2*40/140)

    reduce 0.8m from (Net assets at acq) when u are doing your working 2 Net Assets of subsidiary

    reduce 0.8m from inventory of parent when consolidating the balance sheet

    Hope this helps. I am still learning the concept hence senior members would be able to guide u better.

    Cheers,

    # 11 March 2009 at 9:29 am
  • admin (author) said:

    Message from Hameed

    Dear Setota,

    For consolidation you have to remove intra group markup on closing
    2.8m (8-5.2) stock from subsidiary to parent co.

    Regards,

    # 11 March 2009 at 9:30 am
  • admin (author) said:

    Message from Inese

    Sandeep,

    I am also still learning but I think that 0.8m should be deducted from inventory & should be deducted from net assets at reporting date (not at acq date)?

    With a regard to Income statement in my opinion:

    Sales should be deducted by 8m

    Cost of sales should be deducted by 8m

    URP should be added to cost of sales 0.8m

    Regards,

    Inese

    # 11 March 2009 at 12:08 pm
  • dyltdragon said:

    I agree with what Inese said. However, does anyone care to explain as to why we should deduct cost of sales by 8m?

    # 18 April 2009 at 4:50 pm

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