Topic 5: Cons. Intra group transactions

Question 1

How do we calculate COGS for periodic inventory?

Answer 1

= opening inventory- purchases- closing inventory

Question 2

what are the journal entries to recognise a periodic inventory system?

Answer 2

Dr PURCHASES
Cr cash/ trade receivables

Dr cash/ trade receivables
Cr sales revenue

No transaction recorded for COGS

Question 3

what are the journal entries to recognise a perpetual inventory system?

Answer 3

Dr INVENTORIES
Cr cash/ trade receivables

Dr cash/ trade receivables
Cr sales revenue

Dr COGS
Cr inventories

Question 4

what are the journal accounts to consolidate an intragroup loan payment

Answer 4

Dr loan payable
Cr loan receivable

Question 5

what are the consolidation journal entries we need to do for intragroup transactions?

Answer 5

• eliminate sales transactions between parents and subsidiaries
• eliminate unrealised profit in opening or closing entries of subsidiaries/parent
  -adjust transfer of non current assets/PPE

Question 6

How do we calculate the desired COGS we need to credit on the consolidation journal entries to eliminate unrealised profit in closing balance?

Answer 6

CR cogs on consolidation = preadjustment cogs - desired cogs

Desired cogs = COGS to group(initial cost to group) x the percentage of SOLD inventory

pre-adjustment cogs= cogs for parent + cogs for subsidiary

Note*: inventory amount is the difference between cogs and sales revenue & we calculate the deferred tax effect on the amount of inventory, not sales for intragroup sales only