Introduction and intra-group trading

In this lesson

1. 0:00 Consolidated profit and loss overview
2. 0:30 Basic consolidation principles explained
3. 1:35 Allocating profit to parent and minority
4. 2:04 Consolidation adjustments before allocation
5. 3:39 Inter-group trading and unrealised profit
6. 4:56 Closing inventory valuation at group cost
7. 5:45 Eliminating inter-group transactions
8. 6:51 Recording adjustments in the accounts
9. 7:57 Worked example: Kang and Sam consolidation
10. 11:02 Splitting profit between shareholders

About this lesson

You'll discover why the consolidated profit and loss must reflect the group as a single entity, how to eliminate inter-company transactions to avoid overstating profit, and how to split the final profit between parent shareholders and non-controlling interests based on ownership percentages. The consolidated statement of profit and loss combines all income and expenses from the parent and its subsidiaries line by line, then allocates the final profit between parent company shareholders and non-controlling interests. Before you can do that allocation, you'll need to adjust the subsidiary's profit for consolidation items like impairment of goodwill, unrealised profit on inter-company sales, interest on inter-company loans, and fair value adjustments. The direction of the sale matters: if the subsidiary is selling to the parent, the adjustment affects the subsidiary's profit and therefore the non-controlling interest calculation. Intra-group trading adjustments are where the detailed calculations happen. When one group company sells goods to another and those goods remain unsold at year-end, you must eliminate the entire inter-company transaction from revenue and purchases, then remove the unrealised profit element from closing inventory. This ensures the group only recognises profit on sales made to customers outside the group. You'll work through a practical example showing how to calculate unrealised profit based on the mark-up percentage, adjust closing inventory to cost, and ultimately split the consolidated profit between parent and minority shareholders.

Duration: 12m