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Kaplan 376th sum
Subsidiary’s trade receivable includes $600000 due from parent which did not agree with parents corresponding trade payable. This was due to cash in transit of $200000 from pedantic to subsidiary . both company has positive bank balanceCan u plz explain me Sir why do v have to add cash in transit to trade payable ???
P has current assets $16m which is AFTER deducting $200k cash paid to S. The double entry when P made the payment would have been Dr Payables (inter-co a/c with S) 200 and Cr Cash 200.
The inter-group balances cannot be eliminated on consolidation unless they agree – they don’t agree because P only owes 400. So the cash-in-transit adjustment (in respect of S) is Dr Cash 200 and Cr Receivables (inter-co a/c with P) 200.
Now the inter-co balance agrees at 400 and can be eliminated from both receivables and payables. I think what is potentially confusing to you is that W7 splits the consolidation adjustment as 200 – 600 rather than simply show 400 as the cancellation of the inter-group balance.
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