Question

Which accounts might be misstated on a consolidated financial statement level and why, when an intergroup transaction consisted of a sale of inventory?

Answer 1

When a Inter Group has Transaction of sale of Inventory from one to another, then there will be a possibility that in the following accounts at Consolidated level may be misstated:

• Closing Inventory
• Sales
• Gross profit

The misstatements at consolidated may occur due to:

• Non-adjustment of profit included in the closing inventory of the purchasing company at the time of  consolidation.
• Non- adjustment of sales of the selling company to remove the profit margin added to the goods while selling to other group company.