Page 32 - PowerPoint Presentation

COMPLEX GROUPS

Vertical Groups - Example

Unrealised profits included in inventories

• Sale of inventories from Left Ltd to Centre Ltd

• Left Ltd sold inventories to Centre Ltd (parent to subsidiary).

Left Ltd made the intragroup profit. Cost of sales of Left Ltd
was thus debited and this decreased the group profit.

• Centre Ltd purchased the inventories from Left Ltd, thus the

unrealised profit was included in the closing inventories of
Centre Ltd at year-end. Inventories were decreased with the

unrealised profit to eliminate the unrealised intragroup
profit.

• Left Ltd (parent) was making the profit, thus the unrealised
profit in the inventories was not shown in the analysis of

owners' equity of Centre Ltd. In other words: the non-

controlling interests were not affected. The adjustments
were taken into account in the consolidated statement of

profit or loss and other comprehensive income (cost of sales)
and consolidated statement of financial position

(inventories).
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