7
Group Retained Earnings at the Reporting Date
The group retained earnings at the reporting date can be calculated as follows:
Parent’s retained earnings at the reporting date
XX
Subsidiary’s retained earnings at the reporting date
XX
Deduct: Subsidiary’s retained earnings at the acquisition date
(XX)
Post-acquisition share of net assets attributable to NCI
(XX)
Group retained earnings attributable to Parent
XX
Intra Group Transactions
Intra group transactions refer to transactions that have taken place between separate legal entities of an
economic entity which requires accounting in the financial statement of those individual entities. But
any amount owing and receivable between members of the economic entity
and any intra company
transaction which creates profit or loss should not be identified in the accounts of the economic entity &
be eliminated when preparing consolidated financial statements until it is realized which means till the
risk and rewards transfers to the external party. Intra group transactions
may lead to the following
problem areas:
•
Current accounts between P and S
•
Unrealised profits on sales of inventory
•
Unrealised profits on sales of non-current assets
•
Dividends.
•
Goodwill impairment
Current Accounts
If parent and subsidiary trade with each other then this will probably be done on credit basis leading to:
•
A receivables (current) account in one company’s SFP statement of financial position (SFP)
•
A payables (current) account in the other company’s SFP.
These are amounts owing within the group rather than outside the group and therefore they must not
appear in the consolidated statement of financial position. They are therefore cancelled (contra’s) against
each other on consolidation.
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