Intragroup transactions and unrealised profits

Learning objectives

• Calculate the unrealised profit to be eliminated on inventories acquired from a group entity and still held.L2, L3
• Record the eliminations of intragroup balances and unrealised profit.L3

Normative references

• IFRS 10 §B86Consolidated financial statements combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries; offset (eliminate) the carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each subsidiary (IFRS 3 deals with goodwill); and eliminate in full intragroup items, including profits or losses resulting from intragroup transactions that are recognised in assets. An intragroup loss may indicate an impairment, and IAS 12 applies to temporary differences arising from these eliminations.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Sud SA, a subsidiary of Nord SA, sold goods to Nord at a transfer price. At the reporting date, goods worth {inventory_remaining} at transfer price remain in Nord's inventory. Case convention: Sud's profit margin on these sales is {seller_margin} of the transfer price. Calculate the unrealised profit to be eliminated in the consolidated financial statements.L2
• Ébène SA, a subsidiary of Orme SA, sold goods to Orme. At the reporting date, goods worth {inventory_remaining} at transfer price remain in Orme's inventory. Case convention: Ébène's profit margin is {seller_margin} of the transfer price, and the tax effect is ignored. Record the consolidation entry that eliminates the unrealised profit contained in that inventory.L3
• A group company sells goods to another group company, and some of the goods are still in inventory at the reporting date. What must be eliminated in the consolidated financial statements?L2