Consolidations & Revenue Recognition – transactions with associates

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This topic contains 4 replies, has 3 voices, and was last updated by Avatar of MikeLittle MikeLittle 3 years ago. This post has been viewed 84 times

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    counihan78
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    Hi, I am having trouble with a case study question provided through my employer, I was hoping for some help, to avoid looking completely stupid next week! Company A has 2 subsidiaries B and C. Would there be any impact if a material sale from company B to company C remained unpaid at year end, to be paid at an unknown/unconfirmed time in the future? Would the sale have to be reversed?


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    MikeLittle
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    No, not reversed – but it would need to be cancelled on consolidation. Intra-group transactions have the effect of transferring money from one pocket to another pocket in the same pair of trousers. In addition to reducing consol revenue and consol cost of sales by the invoiced value of the transaction, you will need to ADD to cost of sales any profit element recognised by the selling company B


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    shimmer
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    @mikelittle said:
    No, not reversed – but it would need to be cancelled on consolidation. Intra-group transactions have the effect of transferring money from one pocket to another pocket in the same pair of trousers. In addition to reducing consol revenue and consol cost of sales by the invoiced value of the transaction, you will need to ADD to cost of sales any profit element recognised by the selling company B

    That’s a very nice explanation. Thank you! :)


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    counihan78
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    Hi, thanks for that. I’m fine with the consolidating of B and C into A. But that cancels transactions between A and B and between A and C. What I’m wondering is what you do with the related party transactions between B and C, before they are rolled into A. Sorry if I’m not making much sense


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    MikeLittle
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    Hi – still the same answer! Intra-group transactions get cancelled

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