Intra-group transactions

In this lesson

1. 0:00 Intra-group transactions and consolidation principles
2. 0:22 Current account balances and reconciliation
3. 2:26 Unrealised profits on inventory sales
4. 5:02 Worked example: Breeze and Square consolidation
5. 11:52 Unrealised profits on non-current asset transfers
6. 14:02 Worked example: Machine transfer depreciation adjustment

About this lesson

When a parent and subsidiary trade with each other, balances and profits that exist within the group must be removed from the consolidated financial statements to reflect the group as a single economic entity. You'll explore the main types of intra-group transactions: current account balances, unrealised profits on inventory sales, unrealised profits on non-current asset transfers, loans, and dividend payments. The lesson focuses on the three most examinable areas. For current accounts, you'll learn how to reconcile timing differences caused by cash or goods in transit, then eliminate the balances entirely. For unrealised inventory profits, you'll calculate the mark-up included in closing inventory held by the purchasing entity, then adjust either group retained earnings (if the parent sold) or the subsidiary's net assets (if the subsidiary sold), while reducing group inventory. For non-current asset transfers, you'll remove both the profit on sale and adjust for excess depreciation charged by the purchasing entity, treating these adjustments separately. The lesson includes two worked examples: a full consolidation exercise incorporating an inventory transfer with 75% of goods remaining unsold, and a focused example on a machine transfer between parent and subsidiary. You'll see how to slot these adjustments into the consolidated statement of financial position and understand why each adjustment affects specific ledger lines. By the end, you'll be confident handling the most common intra-group eliminations you'll encounter in your exam.

Duration: 17m