Consolidation: Intragroup Transactions PDF

**Consolidation: Intragroup transactions** Consolidated financial statements represent the parent company and its subsidiaries as a single entity. They exclude revenues, profits, assets, and liabilities from internal transactions, focusing solely on external parties. Adjustments for intragroup tran...

**Consolidation: Intragroup transactions** Consolidated financial statements represent the parent company and its subsidiaries as a single entity. They exclude revenues, profits, assets, and liabilities from internal transactions, focusing solely on external parties. Adjustments for intragroup transactions align with the entity concept of consolidation, which views the group as the combined net assets of the parent and subsidiaries, requiring full elimination of internal transactions. Examples of intragroup transactions where consolidation adjustments are needed include: - Services between group entities during the current period -- management fees - Dividends received or receivable by the parent entity from a subsidiary - Outstanding loan balances between entities at period end together with any interest on the loans for the current period. - Sales of goods between entities during the current period end together with any interest on the loans for the current period. - Sales of goods between entities during the current period together with any unrealized profit in ending inventories - Unrealized profit in opening inventories from prior period sales of goods between entities. - Outstanding balances of receivables and payables between entities during the current period and excess or under -- depreciation. - Gain or loss on transfer of a non-current asset between entities during the current period and excess or under-depreciation - Gain or loss on transfer or a non-current asset between entities during a prior period and excess depreciation or under-depreciation. **Pro-forma worksheet entries** 1. *For intra-group services in current period* Service Revenue DR Service Expense CR 2. *a) Dividend declared and paid in current period* Dividend Revenue DR Dividend Paid CR *b) Dividend declared and payable at end of current period.* Dividend Payable DR Dividend Receivable CR Dividend Revenue DR Dividend declared CR 3. *a) Outstanding loan balances at end of current period* 4. *a) Sale of goods during the current period with unrealized profit in ending inventories.* 5. *Sales of goods during previous period with unrealized profit in opening inventories* 6. *Outstanding balances of receivables and payables from sale of goods or services* Accounts Payable DR Accounts Receivable CR Intercompany Payable DR Intercompany Receivable CR 7. *a) Transfer of land at a gain during the current period* Gain on Sale of Land DR Land CR Deferred Tax Asset DR Income Tax Expense CR OR Proceeds from Sale of Land DR Carrying Amount of Land Sold CR Land CR Deferred Tax Asset DR Income Tax Expense CR *b) Transfer of plant at a gain during the current period with excess depreciation* Gain on Sale of Plant DR Plant\^ CR Deferred Tax Asset DR Income Tax Expense CR Accumulated Depreciation DR Depreciation Expense CR Income Tax Expense DR Deferred Tax Asset CR \^The adjustment is made against plant at cost and accumulated depreciation if the asset has been depreciated prior to the transfer. *c) Transfer of plant at a loss during the current period with under -- depreciation* Plant\^ DR Loss on Sale CR Income Tax Expense DR Deferred Tax Liability CR Depreciation Expense DR Accumulated Depreciation CR Deferred Tax Liability DR Income Tax Expense CR 8. *a) Transfer of Land at a gain during a prior period with land still on hand* Retained Earnings (opening) DR Land CR Deferred Tax Asset DR Retained Earnings (opening) CR *b) Transfer of plant at a gain during the prior period with excess depreciation* Retained Earnings (opening) DR Plant CR Deferred Tax Asset DR Retained Earnings (opening) CR Accumulated Depreciation DR Retained Earnings (opening) CR Depreciation Expense CR Retained Earnings (opening) DR Income Tax Expense DR Deferred Tax Asset CR *c) Transfer of plant at a loss during the prior period with under -- depreciation* Plant DR Retained Earnings (opening) CR Retained Earnings (opening) DR Deferred Tax Liability CR Depreciation Expense DR Retained Earnings (opening) DR Accumulated Depreciation CR Deferred Tax Liability DR Income Tax Expense CR Retained Earnings (opening) CR Assets and Deferred Tax A deferred tax asset happens when you can claim more tax deductions in the future than the asset is currently worth, meaning you'll save on taxes later. A deferred tax liability is the opposite---when you'll owe more tax in the future because the asset is worth more now than what can be deducted for taxes