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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