Question

Large Company owns 80 per cent of the issued capital of Smaller Company and Large Company owns 60 per cent of the issued capital of Medium Company. The three companies form an economic entity for the purposes of consolidated accounts. During the period Smaller Company sold inventory to Medium for $400 000. Medium sold the same inventory to Large for $560 000 and Large sold it to an entity external to the group for $760 000. What is the sales revenue reported in the consolidated statements for this item?

Answer 1

Any intra-group transactions are to be eliminated while preperation of the consolidated statements of the economic group and only the true economic effects of transactions with unrelated external entities are shown.

In the given case, only the final Sale amount of $760,000 for the sale which is to an entity external to the group will be reported in the consoidated statements of the group.

The Intermediary sales of $400,000 and $560,000 and their corresponding purchase effects will be eliminated while preparing the consoidated statements of the group.