Question for Steve (dfs)

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GemmaLouise
GemmaLouise Registered Posts: 56 Regular contributor ⭐
Looking at consolidated income statements.

My tutor said that if some of the goods from inter company sales havent been sold outside the group by the end of the year there is a complication

For example, If PLtd sold goods to S Ltd, selling price 20000 and profit 8000 and half the good remained in stock @ the end of the period. P made the sales so you need to reduce P's profit by 4000.

Where would you show this on the consolidated income statement - in cos?

Thankyou

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  • Steve Collings
    Steve Collings Registered Posts: 997 Epic contributor 🐘
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    Yes, because in the consolidated financial statements the value of the inventories should be shown at the cost to the group. Sales of goods between intra group companies are merely intra-group transfers of goods until they are sold to 3rd parties (customers outside of the group) so no profit is recognised on the sale of those goods until they are sold outside of the group. You would therefore reduce the inventories by the intra-group profit to allow the inventory to be valued in accordance with IAS 2 (lower of cost/net realisable value) because the entries for closing inventory are CR consol. comprehensive income statement and DR consolidated position statement.

    Regards
    Steve
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