Inter-company transactions and balances, Financial Accounting

Assignment Help:

INTER-COMPANY TRANSACTIONS AND BALANCES

As the associate company is not consolidated, care should be taken when there are trading transactions and inter-company balances between the investing company and associate company.

The following general approaches should apply:

1) Inter-company sales of inventory and PPE should be ignored and not adjusted for.

2) Incase of unrealized profit on PPE, opening and closing inventories and excess depreciation, then the investing company’s share of these items is not deducted from the group retained profits and also from the investment in associate company appearing in the balance sheet.

If the sale took place in the current year, then the Unrealised profit on PPE and  on closing inventory and excess depreciation are deducted from the investing company share of profit before tax in associate company.

However, if the sale took place in previous financial periods, then the UP on PPE, UP on opening inventory and excess depreciation are deducted from the group retained profits b/d.

NOTE: The accounting treatment is the same  irrespective of the company that made the sale.

3) In the case of inter-company balances, the amount due to or from the associate company will still appear in the final balance sheet as they are not supposed to be cancelled out.

However you may present the amounts due to or from associate company as a separate item from the other receivables or payables.


Related Discussions:- Inter-company transactions and balances

Ratio analysis, You have previously been exposed to the 'Introduction and a...

You have previously been exposed to the 'Introduction and analysis' of financial statements in previous sections of this course. From now you might have acquired several familiarit

Prepare a partial balance sheet, On December 31, 2014, Santana Company has ...

On December 31, 2014, Santana Company has $7,194,600 of short-term debt in the form of notes payable to Golden State Bank due in 2015. On January 28, 2015, Santana enters into a re

Risk and return - issue of debt, Q. Risk and Return - issue of debt? Ra...

Q. Risk and Return - issue of debt? Raising debt finance will raise the gearing and the financial risk of the company while raising equity finance will lower gearing and financ

What net carrying amount, On June 30, 2011, Omara Co. had outstanding 8%, $...

On June 30, 2011, Omara Co. had outstanding 8%, $3,000,000 face amount, 15-year bonds maturing on June 30, 2021. Interest is payable on June 30 and December 31. The unamortized bal

Analyse the main sources of finance , Consider a multinational listed compa...

Consider a multinational listed company that has recently carried out an acquisition. You may also select a company that carried out an acquisition long ago as long as there is inf

State the relationship between return and risk, State the relationship betw...

State the relationship between return and risk This relationship between return and risk has significant implications for setting financial objectives for a business. Owners wil

ACCOUNTING THEORY, HOW DOES ACCOUNTING THEORY INFLUENCE ACCOUNTING POLICY M...

HOW DOES ACCOUNTING THEORY INFLUENCE ACCOUNTING POLICY MAKING

Determine the basis and return effects for each partner, Carla, Linda, and ...

Carla, Linda, and Terry form a partnership. Carla contributes machinery (that was purchased in 2006 and has an adjusted basis of $45,000 and a fair market value of $70,000) in retu

Accounting for incomplete records , Mr. Surya does not keep a systematic re...

Mr. Surya does not keep a systematic record of his transactions. He is able to give you the following information regarding his assets and liabilities. 2000 2001 Dec. 31 Dec. 3

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd