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CONSOLIDATED

FINANCIAL
STATEMENTS
INTRAGROUP PROFITS AND LOSSES

INTRODUCTION
Transactions between a parent company and subsidiary.
Upstream
sale
Subsidiary

Parent
Company
Latera
l sales

Downstrea
m sale

Subsidiary

Intragroup sale of merchandise (inventories).


Intragroup transfer of plant assets.
The intragroup profits or losses are realized through the sale of merchandise
to an outsider or expiration of the usefulness of the plant asset.

INTRAGROUP SALE OF
MERCHANDISE (INVENTORIES)
Intragroup sales of merchandise involves a parent
company and one or more of its subsidiaries.
Downstream intragroup sales of merchandise
(Parent - - - Subsidiaries)
Upstream intragroup sales of merchandise
(Subsidiaries - - - Parent)
Lateral intragroup sales of merchandise
(Subsidiaries - - - Subsidiaries)

INTRAGROUP PROFIT ON ENDING


INVENTORIES: DOWNSTREAM SALE
The intragroup of profit in ending inventories represents
the gross profit on the intragroup sales of merchandise
that remain unsold at the end of the year.
This gross profit overstates the purchasers ending
inventories and this overstatement represents the
unrealized intragroup profit contained in the ending
inventories.

INTRAGROUP PROFIT ON ENDING


INVENTORIES: DOWNSTREAM SALE
Consolidated working paper eliminations
Eliminate current year intragroup sales and purchases
Eliminate the unrealized profit in the ending inventory
Eliminate intragroup payabkes and receivebles

INTRAGROUP PROFIT ON ENDING


INVENTORIES: DOWNSTREAM SALE
1. Sales

P300

Cost of sales (purchases)

P300

2. Cost of sales (invty., end)


Inventories
3. Accounts Payable
Accounts Receivable

50
50
50
50

INTRAGROUP PROFIT ON ENDING


INVENTORIES: DOWNSTREAM SALE
Sales

P300

P300

Less COGS/COS
inventories, beg.
purchases

P100

100

Goods available
less inventories, end
Gross Profit

P100
100

200
50 150
P150

200
100 100
P200

INTRAGROUP PROFIT ON BEGINNING


ENDING INVENTORIES:
DOWNSTREAM SALE
Consolidated working paper eliminations

Recognize the realized intragroup profit in the beginning


inventories
Eliminate intragroup sales and purchases for the current
year
Eliminate unrealized intragroup profit in ending
inventories
Eliminate intragroup receivable and payable

INTRAGROUP PROFIT ON BEGINNING


ENDING INVENTORIES:
DOWNSTREAM SALE
1. Retained Earnings (parent)

P50

Cost of sales (invty., beg.)


2.

Sales

P50

300

Cost of sales (purchases)


3.

Cost of sales (invty., end)


Inventories

4.

300

Accounts Payable
Accounts Receivable

50

50
50
50

INTRAGROUP PROFIT ON BEGINNING


ENDING INVENTORIES:
DOWNSTREAM SALE
Sales

P300

P300

Less COGS/COS
inventories, beg.
purchases

P100

100

Goods available
less inventories, end
Gross Profit

P150
100

200
50 150
P150

250
100 150
P150

INTRAGROUP PROFIT ON BEGINNING


AND ENDING INVENTORIES:
UPSTREAM SALES

The seller is the intragroup transfer of merchandise is


the subsidiary.
The procedures for elimination on the consolidated
working paper are the same as down stream sales
except for the recognition of realized profit on the
beginning inventory.
The realized profit on the beginning inventory is
apportioned between the parent and the non-controlling
interest.

INTRAGROUP PROFIT ON BEGINNING


AND ENDING INVENTORIES:
UPSTREAM SALES
1. Retained earnings (parent) xx

Retained earnings (subsidiary) xx


Cost of sales ( invty., beg.) xx
2. Sales

xx

Cost of sales (purchases) xx


3. Cost of sales (invty., end) xx
Inventories xx
4. Accounts Payable xx
Accounts Receivable

xx

INTRAGROUP PROFIT ON BEGINNING


AND ENDING INVENTORIES:
LATERAL SALES

Sales between two subsidiaries of the same parent


company
In case of wholly owned subsidiary selling merchandise
to another wholly owned or partially owned subsidiary,
the elimination entries are the same as in downstream
sales
In the case of partially owned subsidiary selling
merchandise to a wholly owned or partially owned
subsidiary, the elimination procedure are the same as in
upstream sales

INTRAGROUP TRANSFER OF FIXED


ASSET

INTRAGROUP PROFIT ON SALES ON


LAND
1. YEAR OF SALE
restore the carrying value of the asset to its original historical
cost and eliminate the recorded gain or loss on the sale.
Gain on sale of land xx
Land xx
2. SUBSEQUENT YEARS
eliminate the unrealized intragroup profit on the asset
Retained earnings
Land xx

xx

INTRAGROUP PROFIT IN TRANSFER


OF DEPRECIABLE ASSETS
Profit on intragroup transfer of depreciable fixed asset is
realized over the estimated useful life of the asset
Annual depreciation, therefore, cause a significant
difference in the consolidated working paper elimination
entries for intragroup profit on the sale of depreciable
fixed assets compared with the eliminations described
on intragroup profit on sale of land.

INTRAGROUP PROFIT IN TRANSFER


OF DEPRECIABLE ASSETS
1. Year of sale
a. restore the carrying value of the asset to its original
book value and eliminate the gain (loss) in the sale
recorded by the seller
b. recognize the realized gain on sale of the asset by
reducing the depreciation expense and the related
accumulated depreciation to reflect the original book
value of the asset.

INTRAGROUP PROFIT IN TRANSFER


OF DEPRECIABLE ASSETS
2. Subsequent years
a. restore the carrying value of the asset to its original book value
at
the beginning of the year and eliminate the unrealized gain
on the sale of the asset
1. if the parent is the seller (downstream sale), the
earnings account of the parent company is debited

retained

2. if a less than 100% owned subsidiary is the seller (upstream


sales), the adjustment is to be retained earnings account of the
parent company for its allocated share of the adjustment. The
allocated adjustment to the non-controlling interest is debited to
the retained earning account of the subsidiary

INTRAGROUP PROFIT IN TRANSFER


OF DEPRECIABLE ASSETS
b. recognize realized gain by reducing the depreciation
expense and the related accumulated depreciation to
reflect the original book value of the asset

SALE OF DEPRECIABLE ASSET TO THIRD PARTIES


PRIOR TO THE EXPIRATION OF THE ASSETS
USEFUL LIFE
Depreciable assets acquired through intragroup transfer
may subsequently be sold to parties outside the
consolidated group prior to the expiration of the
estimated useful life. The consolidated income statement
on the year of sale to outsiders would reflect a realized
gain which consist:
1. the gain recorded by the seller upon resale.
2. the remaining unrealized intragroup gain which
automatically becomes realized