Elimination of intragroup profit Flashcards
Explained
What is eliminated?
all intra-group profits should be eliminated for group accounting purposes only transactions with the group’s environment are to be considered
In case of 100% control full elimination is obvious
What is downstream delivery?
If the parent delivers to the sub. A, the profit materializes in the single F/S of the parent
Minorities are not affected at all
Full elimination is to be performed against the controlling interest
Upstream/Cross-stream delivery
If the Sub. A delivers to the Parent [or any other group company], the profit materializes in the single F/S of the Sub. A
–> therefore the minorities are affected
–> therefore the minorite are to be considered in the elimination
What is interest theory?
No full elimination
Least preferable (no support by international standards)
Single entity theory 1
Full elimination
In theory best alternative (available under all standards)
Single entity theory 2
Full elimination
Practical and threfore mostly applied (Acceptable under IFRS)
Example
Inventory and delivery
Elimination of intragroup profit based on interest theory
Elimination of intragroup profit based on Single entity theory 1
Idea: complete elimination of intra-group profit and strict allocation proportionately to controlling interest and minorities
Consequences: intra-group profit on opening balance as well as on movements during period are fully eliminated and separately accounted for the controlling interests and the minorities
Booking entries of Single Entity Theory 1
Single entity theory 2
Idea: complete elimination of intra-group profit BUT only allocation to controlling interest
Consequence: intra-group profit on opening balance as well as on movements during period are fully eliminated and only accounted for the controlling
interests
Booking entries for single entity theory 2
Overview of Eliminations
