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Dear Mike
Hope you are fine.
Would you please let me know how we should treat with intra-group service?
Suppose the subsidiary performs a service for the parent, while the revenue from the service is $50 and the cost of service is $20??
Obviously we should deduct 50$ from both consolidated revenue and consolidated consolidated cost of sale.
But what should we do with the profit of $30?Thanks for your help.
Kind RegardsThat’s an interesting one!
From the subsidiary’s point of view, I believe that the double entry would be:
Dr Parent Current Account $50
Cr Revenue $50and from the parent’s point of view, the double entry would be:
Dr Repairs (say) $50
Cr Subsidiary $50The current accounts will cancel against each other, unless already paid in which case there’s no adjustment to make there
So far as the group is concerned, those repairs cost $20 and that amount will be shown within the subsidiary’s records as a cost of sale
The cancellation of $50 Revenue against $50 Repairs should go ahead
But that now leaves me with $20 in subsidiary’s cost of sales and that needs to be transferred into the Repairs line of the Statement of Profit or Loss
So, on consolidation, (in addition to the cancellation of Revenue against Cost of Sales) we need to Dr Repairs $20 and Cr Cost of Sales $20
OK?
I don’t remember ever seeing that problem come up in F7!
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