Page 32 - PowerPoint Presentation
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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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