Question

Describe a situation (either from personal/professional experience or from research) that involves unusual/complex intra-company transactions. Discuss the accounting implications.

Answer 1

Intracompany transactions - Intracompany transactions are transactions where the transaction occurs between two subsidiaries of the same parent company. For example, if a supplier sells a retailer and they both are subsidiaries of same parent company, this is said to be an intracompany transaction. Intra Company transactions are internal and takes place in a company itself. It could be between branches or different departments within the same company.

One of such example of complex transaction is transfer of goods from one subsidiary to another.

The subsidiary that transfer the goods will record the reduction of inventory and will record the sale as amount received from the second subsidiary in case of standalone financial statement. Final sales will be booked from second subsidiary and they will record the purchase cost of goods that they have received from the first subsidiary in case of standalone financial statement.

If case of consolidated financial statement, the only the final sales will be booked and cost of purchase/manufacturing will be recorded. The intracompany sales recorded from first subsidiary and purchase cost recorded in the second subsidiary will be emiminated.

This is the financial implication of the intracompany transaction.