Lecture 6 - Lecture 6 Intra-Group Transactions 1 Learning...

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1 Lecture 6 Intra-Group Transactions
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2 Learning Objectives Understand the need for the elimination of intra-group transactions Prepare the necessary worksheet adjustments Describe how unrealised profits from intra-group transactions become realised
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3 1.Need for adjustments The consolidated financial statements need to: show the financial performance and position of the economic entity , not that of the legal entities show only those profits or losses made by transacting with parties external to the economic entity
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4 Unrealised/realised profits profits Realisation occurs on involvement of an external party in the transaction, or the consumption by the economic entity of the benefits of the asset containing unrealised profits
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5 Elimination of intra-group transactions Only transactions with parties OUTSIDE the group are relevant to assessing the performance of the group Transactions INTERNAL to the group do not contribute to real profit or loss They are eliminated IN FULL Only exception is dividends where the subsidiary entity is less than 100% owned
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6 2. Intra-Group Transactions and AASB 112 Income Taxes and Consolidated Statements A consolidation adjustment that does not change the group’s profit before income tax cannot change the group’s income tax expense – so do not tax effect for these For example, the elimination of an expense and a revenue – both belong on the income statement and the net effect of such an elimination is nil
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These need to be tax- effected Adjusting entries that change the carrying amount assets or liabilities (there is no change to the tax base) will result in a DTA or DTL For example, the adjustment of depreciation – one side of the adjustment affects the income statement (depreciation expense) and the other side of the adjustment affects the Balance Sheet (Accumulated Depreciation) 7
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8 3. Elimination of inter- entity transactions
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9 A. Intra-Group Services Example: Management Fees If already paid there is only one elimination If unpaid there also need to be an elimination for the amount unpaid Date Account Debit Credit Management Fee Revenue x Management Fee Expense x Date Account Debit Credit Management Fee Payable x Management Fee Receivable x
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Lecture 6 - Lecture 6 Intra-Group Transactions 1 Learning...

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