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Required: Discuss how intercompany transfers should be treated for consolidation purposes, in both the statement of...

Required:

Discuss how intercompany transfers should be treated for consolidation purposes, in both the statement of financial position and the statement of comprehensive income.

NB: refer to the related IFRS’s an IAS’s in your discussion.

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Answer #1

Tracking intercompany transactions is perceived as one of the most common problems with financial consolidation. Intercompany transactions are transactions that happen between two entities of the same company. Not adjusting intercompany transactions results in consolidated financial statements that do not offer a true and fair view of the group’s financial situation.

Intercompany eliminations (ICE) are made to remove the profit/loss arising from intercompany transactions. 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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