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Question 6 When affiliated companies sell on credit the trade balances, intercompany receivables and payables a)...

Question 6

When affiliated companies sell on credit the trade balances, intercompany receivables and payables

a) appear only on the books of the parent in consolidated statements

b) appear only on the books of the subsidiary in consolidated statements

c) do not appear on consolidated statements
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Answer #1

The answer is C. Do not appear on consolidated statements

This is due to the fact that due to transactions between the two intercompany, the holding have not made any profit or loss and considering those transactions will not reflect the true and fair position of the holding company. Hence, no intercompany receivables, payables, investments, capital, revenue, cost of sales, or profits and losses are recognised in consolidated financial statements until they are realised through a transaction with an unrelated party.

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