Accounting Methods for Lateral Intercompany Trading

Smithy_843

Hi All,

I'm seeking some guidance on general intercompany trading and specifics on lateral intercompany sales and purchases.

I've previously worked in Groups with a number of affiliates and subsidiaries separated by entity and geographical location, the accounting was always easy and I used an elimination company to strip out intercompany transactions at consolidated level, but, I've recently started working in a Group that has various entities all based on one site. Each entity has a number of functions and trading names within and there is a large amount of intercompany trading within each entity as well as lateral, upstream and down stream trading with other entities.

My question relates mainly to 'joint sales' and how these should be accounted for within each entity. For example:

Company A secures a sale of a package of activities worth £600, the activities will be delivered by Company A, Company B and Company C.

The activities delivered by each entity all have the same RRP, so Company A is delivering £200 worth of sales, and so is Company B and C.

Example 1, traditional intercompany accounting:

Company A
Revenue: £600
Cost: £400 (Charged from Company B and C) + £x

Company B
Revenue: £200 (Charged to Company A)
Cost: £x

Company C
Revenue: £200 (Charged to Company A)
Cost: £x

Example 2, should the revenue be split at source and moved via intercompany to the other entities as follows:

Company A
Revenue: £200
Cost: £x

Company B
Revenue: £200
Cost: £x

Company C
Revenue: £200
Cost: £x

I'm fairly sure what should be happening but its always great to get some re-assurance!

Thanks in advance!