Washington Business Daily

How to treat inter company balance on consolidated accounts?

I have an exam on accounting and one of the questions is going to be how to treat inter company purchases on consolidated accounts. I know IAS 27 states that all inter company balances be written off the balance sheet. I have been told we need to do something on the income statement to do with unrealised profit, and some portion is taken off/added on cost of sales and/or purchases but i am very lost and cannot find any of the information in my text book.

Public Comments

1. You only need this elimination entry if you have on hand inventory that was purchased from another group company. You find out the unrealised profit (the markup on the inventory) and pass this entry in the income statement worksheet: Dr COGS xxx Cr Inventory xxx When transferred to the balance sheet, it will be: Dr Retained earnings xxx Cr Inventory xxx The lecture in the link will explain this more clearly.