FRK300

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Group statements Chapter 5 NOTES


Financial accounting 300 (University of Pretoria)




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Group statements Chapter 5
c NB Principle: Consolidated FS can only reflect transactions with 3rd parties outside the
group
c IFRS10.B86(c) requires that all intragroup balances, transactions, assets and liabilities are
fully eliminated on consolidation


Intragroup purchases/sales
c Full amount of intragroup purchases/sales = eliminated on consolidation

Consolidation journal:

Dr Revenue (P/L)
Cr Cost of sales (P/L)  removes the purchases leg of the transaction


Unrealised profit in closing inventory
P sells inventory to S – inventory still on hand at Y/E

c The profit made be P cannot be recognised in the consolidated FS
c Profits relating to transactions between P and S are not realised
c When will unrealised profit realise?
o When sold to a 3rd party

Thus, any intragroup inventory still on hand at Y/E
= will result in unrealised profit

c Cannot be recognised in consolidated FS because it is not sold to 3rd parties
c Eliminate upon consolidation

NB! Inventory must be measured at the original cost price for the group in the consolidated
FS  therefore, cost of intragroup inventory adjusted upon consolidation

Consolidation journal:

Dr Cost of sales (P/L) [á COS – â profit]
Cr Inventories (SFP) [â cost price of inventory]


Unrealised profit in opening inventory
When the next year is consolidated:
c The individual FS will not reflect the previous years’ consolidation adjustments




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