Page 33 - PowerPoint Presentation

COMPLEX GROUPS

Vertical groups - example

• Sale of inventories from Centre Ltd to Right Ltd

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

Centre Ltd made the intragroup profit. Cost of sales of Centre

Ltd was thus debited and this decreased the group profit. Right

Ltd purchased the inventories from Centre Ltd, thus the

unrealised profit was included in the closing inventories of

Right Ltd at year-end. The inventories were decreased with the

unrealised profit to eliminate the unrealised intragroup profit.

• Centre Ltd (subsidiary) was making the profit, thus the

unrealised profit in the inventories was shown in the analysis of
owners' equity of Centre Ltd. In other words, the non-

controlling interests were also adjusted. The adjustments were

also taken into account in the consolidated statement of profit

or loss and other comprehensive income (cost of sales) and the

consolidated statement of financial position (inventories).

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