Consolidations: Ch 5 - Intragroup transactions: Inventories

Question 1

Which transactions must be reported with regards to the group ?

Answer 1

only transactions with third parties outside the entity should be reported.

Question 2

What is the entity concept ?

Answer 2

consolidated statements should only report transactions with third parties outside of the group.

Question 3

What does IFRS 10 require

Answer 3

That all intragroup balances , transactions, income and expenses be eliminated in full.

Question 4

Journal entry- parent

• P acquires inventory from S

Answer 4

Inventories …… 1000

…Cash……………………..1000

Question 5

Journal entry - group

• eliminate intragroup transaction of inventory.

Answer 5

revenue…………… 1000

…. cost of sales…………1000

Question 6

Journal entry - subsidiary

• purchase/sale of inventory.

Purchase inventory externally at R700
Sell inventory to parent at R1000

Answer 6

cost of sales ….. 700
….inventories……………700

Cash …………… 1000
……revenue…………….1000

Question 7

Journal entry - Group

Inventory in closing balance that has not been sold.( unrealised profit) (25%)

S.P - 1200

Answer 7

Cost of sales (s) …… 300
….. cost of sales(p)…………..300
( unrealised profit in unsold intragroup inventories)

Question 8

Journal entry - Parent

• when inventory from subsidiary is partially sold ( 1/4)

S.P - 1200
C.P - 1000

Answer 8

Cash ……. 300 (S.P X 1/4)
……revenue …….300 (S.P X 1/4)

cost of sales …. 250 (C.P X 1/4)
….. inventories……….. 250 (C.P X 1/4)

Question 9

What happens when unrealised profit in closing inventories occurs?

Answer 9

It will be recognised in the retained earnings opening balance in the following year.

Question 10

Journal entry - consolidated group

• unrealised profit in opening inventories.
  ( STEP 1)
• S.P = 1200
• Sold last financial year : 25% ( R300)

Answer 10

Retained earnings: OB (s)…… 225 ( S.P- sold)(1/4)
…… inventories (p) ……………………….225 (S.P-sold)(1/4)

( 1200 - 300) = 900 X 1/4 = 225

Question 11

Journal entry - consolidated group

• opening inventories has been sold to a third party. ( STEP 2)
• S.P- 1200
• Sold last financial year : 25% ( R300)

Answer 11

Inventories ………. 225

… cost of sales …………..225

Question 12

Journal entry - consolidated group

opening inventories has been sold to a third party. ( STEP 3)

• (Combination entry)

Answer 12

Retained earnings (s) OB..... 225
................cost of sales......................225