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The usual rules are as follows:
•
If the goods or cash are in transit between parent and subsidiary, make the adjustments to the stateme
nt of financial position of the recipient:
Cash in transit is adjusted by:
Adding Cash in transit
Deducting Receivables current account
Goods in transit is adjusted by:
Adding inventory
Deducting payables current account
this adjustment is for the purpose of consolidation only.
Once in agreement, the current accounts may be cancelled as part of the process of cross casting the asse
ts and liabilities. This means that reconciled current account balance amounts
are removed from both
receivables and payables in the consolidated statement of financial position.
Unrealized Profit
Profits made by members of a group on transactions with other group members are:
•
recognised in the accounts of the individual companies concerned, but
•
in terms of the group as a whole, such profits are unrealised and must be eliminated from the con
solidated accounts.
Unrealized profit may arise within a group scenario on
•
inventory where companies trade with each other
•
Non current assets where one group company has transferred an asset to another.
Unrealized Profit in Inventory
When one group company sells goods to another a number of adjustments may be needed.
•
Current accounts must be cancelled.
•
Where goods are still held by a group company, any unrealised profit must be cancelled.
•
Inventory must be included at original cost to the group
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Adjustments for unrealized profit in inventory
The process to adjust is:
1)
Determine the value of closing inventory included in an individual company’s
accounts which
has been purchased from another company in the group.
2)
Use mark-up or margin to calculate how much of that value represents profit earned by te selling
company.
3)
Make the adjustments. These will depend on who the seller is
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