ACCG308 Lecture Notes - Lecture 8: Fixed Asset, Henry Kissinger, Balance Sheet
19 Jun 2018
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INTRA-GROUP TRANSACTIONS
Jubb chapter 20
INTRODUCTION
Transactions:
* Between parent and subsidiary
* Between fellow subsidiaries
….are intra-group transactions (I/Gs), also called intercompany transactions
I/Gs affect both companies; namely
* Affected items
° revenues/expenses
° debtors/creditors if on credit
° profits
* They do not effect group equivalents
Eliminate all aspects of I/Gs from group data.
* Assume wholly owned group for now:
... eliminate I/Gs 100%
I/Gs examined are
° dividend appropriations,
° supply of finance & interest charges
° supply of goods/services + mark up
° fixed asset transfers
° debt in the form of debentures.
Data on I/Gs in problems/examples
* Disclosed as separate F/S items
* Hidden in other F/S items but signalled by additional information
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I/G -THE EXCHANGE
Exchange creates revenue & expense of same amount
*Affects each company's profit and loss
Eliminate exchange from aggregate group data
* How: Dr revenue item
Cr expense item
* Why: Prevent overstatement - gross
* When: Consolidated financial statement (CFS) design has this level of detail
Exchange of services
* Professional, Management, Financial
Dr Consulting fee (revenue) xxxx
Cr Consulting fee (expense) xxxx
Eliminate intercompany consulting fees
Exchange of goods
* Expensed immediately
Dr Sales xxxx
Cr Food supplies (expense) xxxx
Eliminate intercompany sale of goods
* Taken to inventory
Dr Sales xxxx
Cr Purchases (or COGS) xxxx
Eliminate intercompany sale of goods
Dividends from sub received as revenue
* Impact of subsidiary's dividend on group:
° Shifts profit location
° Doesn't increase/reduce group profit
Dr Dividend revenue xxxx
Cr Dividend appropriation/retained profits xxxx
Eliminate intercompany dividend
* Impact of parent's dividend on group:
° Reduces group retained profits & net assets
° Cash outflow to parent shareholders
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I/G - RECEIVABLES & PAYABLES
Loans and ancillary debts
* Flow on effect of exchanges on credit
* Receivable & payable of same amount
* Eliminate from aggregate group data
° How: Dr payable; Cr receivable
° Why: Prevent overstatement - gross
° Examples
... finance loans
... interest accrued on loans
... dividend declared and owing
... trade debts
Dr Dividend payable xxxx
Cr Dividend receivable xxxx
Eliminate I/G dividend debt
Bills of exchange
* Procedures
° 'Acceptor' promises to pay fixed sum to 'drawer' at stated future date
° Drawer can:
... hold until due; collect full sum from acceptor
... discount to bank for immediate, smaller sum
° Discounting terms:
... 'with recourse'
... 'without recourse'
° Acceptor not aware of discounting until bill presented for payment
Document Summary
. are intra-group transactions (i/gs), also called intercompany transactions. Affected items revenues/expenses debtors/creditors if on credit profits. Eliminate all aspects of i/gs from group data. Assume wholly owned group for now: eliminate i/gs 100% I/gs examined are dividend appropriations, supply of finance & interest charges supply of goods/services + mark up fixed asset transfers debt in the form of debentures. Hidden in other f/s items but signalled by additional information. Exchange creates revenue & expense of same amount. Consolidated financial statement (cfs) design has this level of detail. Impact of subsidiary"s dividend on group: xxxx xxxx xxxx xxxx xxxx xxxx. Reduces group retained profits & net assets. Examples finance loans interest accrued on loans. "acceptor" promises to pay fixed sum to "drawer" at stated future date. Hold until due; collect full sum from acceptor. Discount to bank for immediate, smaller sum. Acceptor not aware of discounting until bill presented for payment. If drawer & acceptor are both group companies, then.
