Topic 6 - Intra Group Transactions

Question 1

Why do we eliminate transactions between the parent and the subsidiary?

Answer 1

Any transaction between the Parent & Subsidiary is NOT a real transaction from a Group’s perspective

Question 2

Which type of transactions between entities of the group need to be eliminated?

Answer 2

assets and liabilities, equity, income, expenses and cash flows

Question 3

Does this elimination principle apply to:

(1) transactions of current reporting period;
(2) ongoing effects of prior period intra-group transactions.

Answer 3

Both

Question 4

When is Profit or loss is realised from the group’s perspective?

Answer 4

when a party external to the group is involved.

i.e. selling inventory, selling or depreciating PPE assets fully

Question 5

in a subsequent year, which prior year figure becomes the opening figure for COGS, before any further adjustments are made?

Answer 5

the inventory value of the prior year

Question 6

When transactions concerning assets or liabilities are eliminated, what further impacts must be accounted for?

Answer 6

unrealised profits/ losses therefore must account for tax effect

Question 7

what are the five scenarios when accounting for intra group inventory transactions?

Answer 7

1. Sale in current period: unrealised profit.
2. Sale in current period: realised profit.
3. Sale in current period: partially unrealised profit.
4. Sale in prior period: unrealised profit in opening inventory
   4a. Sale in prior period: unrealised profit in open + ending inventory