You are on page 1of 8

ACC 3501: Advanced Group

Accounting

Intra-group balances

NAMG Sem 1 2017/18 1


Purpose of a consolidated financial
statement
To show the results of a group as if they were
those of a single entity
To show the resources which are under one
common control i.e the shareholders of the parent
company
A CFS should only reflect the transactions between
the group and the external parties only
If there are intra-group balances included in the
accounts of the parent and the subsidiary, these
balances are to be eliminated on consolidation
NAMG Sem 1 2017/18 2
Inter-company balances - examples
1. P sells goods costing RM6,000 to S.
In P In S
Dr Trade receivables 6,000 Dr Purchases 6,000
Cr Sales 6,000 Cr Trade payables 6,000
On consolidation
Dr Trade payables (S) 6,000
Cr Trade receivables (P) 6,000
Otherwise, (if not eliminated)
Total assets & total liabilities of the group will be overstated
CFS will not reflect transactions between the group & the external
parties only
NAMG Sem 1 2017/18 3
Examplescontd
2. P sells goods of RM6,000 to S payable by means of
four separate bills of exchange of RM1,500 each.
In P In S
Dr Bills Receivable 6,000 Dr Purchases 6,000
Cr Sales 6,000 Cr Bills Payable 6,000

On consolidation
Dr Bills Payable (S) 6,000
Cr Bills Receivable (P) 6,000

NAMG Sem 1 2017/18 4


Examplescontd
3. Continuation of (2) above. P presented one of the bills to the bank
even though the date of maturity had not been reached.
In P
Dr Cash 1,500
Cr Bills Receivable 1,500

On consolidation
Dr Bills Payable (S) 4,500
Cr Bills Receivable (P) 4,500
Amount eliminated is limited to the unpresented amount.

NAMG Sem 1 2017/18 5


Examples contd
Bills receivable from S RM1,500

BANK

Bills receivable from S RM4,500 Bills Payable to P RM4,500


to Bank RM1,500

P S

NAMG Sem 1 2017/18 6


Examplescontd
4. P gives loan of RM6,000 to a subsidiary
company.
In P In S
Dr Loan to S 6,000 Dr Bank 6,000
Cr Bank 6,000 Cr Loan from P 6,000

On consolidation
Dr Loan from P (S) 6,000
Cr Loan to S (P) 6,000

NAMG Sem 1 2017/18 7


Examplescontd
5. Continuation of (4) above. S pays RM2,000 on account of the loan
but P receives it only after year-end.
In S
Dr Loan from P 2,000
Cr Bank 2,000

In P
(a) Bring the inter-company balances to the same amount,
Dr Cash in transit 2,000
Cr Loan to S 2,000
On consolidation
(b) Dr Loan from P (S) 4,000
Cr Loan to S (P) 4,000

NAMG Sem 1 2017/18 8

You might also like