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Consolidation Question.

Treatment of Inter Company transactions on consolidation

Subsidiary (S) sells Widgets to Parent Company (P).

The majority of Widgets are then sold by P to 3rd party. However, a few of the Widgets are capitalised in P's books and are not for resale.

On consolidation the Widgets that are sold on are just eliminated from the sale(S) & purchase (P)  - but i am unsure how to treat the Widgets that have been capitalised. Any help appreciated.

Thanks

 

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10th Nov 2017 16:46

Remove the sale of the widgets in S.
Remove the costs of those widgets in S.
Balance is the profit recognised in fixed assets and should be stripped from the value carried in fixed assets (similar to PURPS).

Is probably the correct way.

The less correct way, if it is not material, is just to ignore it.

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10th Nov 2017 16:56

No
Loose the profit
Reduce cost of FA to cost to group

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