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If parent provide services to subsidiary at 60000, parent let out a building to subsidiary at 120000per annum and interest rcvd from providing loan by parent to subsidiary, interest 160000, these three transactions need to offset against parent’s earnings?
Hi – it depends what you mean by “parent’s earnings” The cancellation is a cosmetic exercise carried out in order to eliminate the situation where, on consolidation, the group statements are reflecting receivables / payables from itself.
The revenue from the provision of services (60,000) will be deducted in arriving at combined revenue and deducted also from the line item in which the subsidiary has recorded the 60,000 as an expense (could be cost of sales or maybe administrative expenses)
Rental income of 120,000 will be deducted from combined rental income and also deducted from the combined rent expense
Interest received by the parent from the subsidiary in respect of a loan made by the parent will correspondingly be being shown in the subsidiary’s records as a finance expense (interest expense). 160,000 should be deducted from the combined amount of interest received (finance income) and also from the combined amount of interest expense (finance costs)
But none of those adjustments is reflected in working 3, Consolidated Retained Earnings.
OK?
Then, if consolidated statement of comprehensive income to be prepared, these transactions need to be removed?
I thought that that was what I wrote! For each item of income which is eliminated there is a corresponding expense eliminated. The net effect is that the consolidated Income remains the same, whether you eliminate them or not. But it would be incorrect not to eliminate!
I have another question regarding accounting hedge, how do we know the hedging instrument is a liability or asset?
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