Inter-company transfers

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hiya all,

Could somebody explain what to do with inter-company transfers, please?
Business Strusture:
1. The company has two sites, S and W
2. S produces "PT", W produces "AF"
3. The company uses a raw material on both sites and S sells W part processed material to W at a transfer price. The transfer price is based on cost of production.

Task: To prepare the consolidated operating statement for the year. (Turnover, Cost of Sales, GrossP, Selling, Distribution and Admin, NetP). What to do with the inter-company transfers which is £0.41m?
Also I should prepare VAT return, where will this inter-company transfer appear? :roll:
Thank you.




Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Inter-company transfers
    Barmik wrote:
    Hiya all,

    Could somebody explain what to do with inter-company transfers, please?
    Business Strusture:
    1. The company has two sites, S and W
    2. S produces "PT", W produces "AF"
    3. The company uses a raw material on both sites and S sells W part processed material to W at a transfer price. The transfer price is based on cost of production.

    Task: To prepare the consolidated operating statement for the year. (Turnover, Cost of Sales, GrossP, Selling, Distribution and Admin, NetP). What to do with the inter-company transfers which is £0.41m?
    Also I should prepare VAT return, where will this inter-company transfer appear? :roll:
    Thank you.

    That dosen't sound like a foundation level question to me, in fact I didn't think that transfer pricing was covered on the AAT syllabus but it was years since I did mine.

    Anyway, on my course it's called inter-group sales. When preparing a group income statement for inter-group sales, for the turnover figure, the sales figure is simply cancelled in the selling company and the cost of sales is cancelled in the receiving company.

    NOTE: your question refers to to two "sites" but then the answer asks for a consolidated operating statement. If the two sites are simply two sites of the same company ignore my answer, I have assumed this is a group accounts question and the two sites are actually seperate companies but part of the same group.

    It gets more complicated if they were sold at a profit but yours says they were sold at cost, so I won't go into that. If you want to know the effects if they were transferred at a profit or the effects on the consolidated balance sheet sing out, but be warned it gets complicated fast.

    As regards to the VAT return i've never looked at it. Sorry maybe someone else can help with that one but I would contact HMRC to be sure.

    Sorry this post is long but the question is ambiguous.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Inter-company transfers

    Thank you very much lincs for your help.

    These two sites are two sites of the same company. One site S-Scarbourogh sells pet feeds and another W-Whitby selld animal feed. They have the only owner.

    I am really at Certificate level( which equivalent Foundation), but only Diploma pathway. I am doing Unit 31 Distance leaning with FTC. And this topic was not covered in Unit 30 as well so I am so confused.

    Propably I just will ignore this inter-company transfers. Thanks again.

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