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Hi,
Just want to get clarity on the below – is there a pro forma way of doing the below type adjustment in consolidation questions?
Plastik had a trade receivable balance owing from Subtrak of $1·2 million as at 30 September 2014. This differed to the equivalent trade payable of Subtrak due to a payment by Subtrak of $400,000 made in September 2014 which did not clear Plastik’s bank account until 4 October 2014. Plastik’s policy for cash timing differences is to adjust the parent’s financial statements.
Kind regards,
Jason.Two possibles
1) make the in-transit adjustments on the face of the question paper remembering to keep double entry debit and credit in the appropriate columns ie don’t debit cash in one company and credit receivables in the other
Then, on completion of the in-transit movements, the current accounts should reconcile. The difficulty is then working out at what figure do they reconcile!
2) open two T accounts. One in the parent’s records called Receivable from subsidiary (or Payable to subsidiary as appropriate), the other in the subsidiary’s records called Payable to parent (or …..as appropriate)
Put in the brought forward figure(s) from the question in the correct T accounts
Record the in-transit items
Balance off the T accounts and the missing figures should reconcile
The only real issue is remembering “the rule” that in-transit items are accelerated into the records of the receiving company
OK?
Try both methods with Plastik and Subtrak and find out which method you prefer. (Personally I would always do the T account method but not everyone is as addicted to T accounts as I am)
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