Intra-group transactions may or may not contribute to the consolidated profit or loss.

ACCG3008-CORPORATE ACCOUNTING AND BUSINESS ADVISORY

Chapter 20

20.2 Intra-group transactions may or may not contribute to the consolidated profit or loss. Explain the circumstance in which a group entity can be said to have made profit or loss on intra-group transactions.

Expert Solution

Schedule 6 to the Accounting Regulations requires the elimination of intragroup transactions in the preparation of group accounts. In particular:

(a) the elimination of 'debts and claims' and 'income and expenditure' relating to transactions between undertakings included in the consolidation; and

(b) the elimination of 'profits and losses' on such transactions to the extent that they are included in the book value of assets'. This elimination is specifically permitted to be in proportion to the group's interest in the shares of the undertakings (although FRS 102 restricts this and states that profits and losses must be eliminated in full).

It is noteworthy that the required eliminations are only in respect of undertakings included in the consolidation. They are not extended to subsidiaries excluded from consolidation. Also, elimination is not required where the amounts are not material for the purpose of giving a true and fair view.

ekkarill92 answered 1 year ago

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