At the same board meeting the CFO reported that a partially owned subsidiary provided professional services
Part B
At the same board meeting the CFO reported that a partially owned subsidiary provided professional services and sold inventory to the parent company JKY Ltd at a profit. The CFO is seeking clarification from the board in relation to whether profit should be deducted from the subsidiary’s reported profit for the sale of inventory and for providing the professional services to the parent entity. Secondly, how will this affect the non-controlling Interest (NCI) calculation in the subsidiary’s annual profit?
With reference to AASB 127 Consolidated and Separate Financial Statements and AASB 10 Consolidated Financial Statements and the issues raised in Part B, discuss the key principles and provide examples which explain how intra-group transactions should be treated.
Hint
Accounts & Finance "Acquisition Methods:When an acquirer buys another company and uses GAAP, it has to record the event using the acquisition method and the approach mandates a series of steps to record the acquisitions, like:1) Measuring any tangible assets and liabilities that were acquired2) Measuring any in-tangible assets and liabilities that were acquired3) Measuring the amount of a...
When an acquirer buys another company and uses GAAP, it has to record the event using the acquisition method and the approach mandates a series of steps to record the acquisitions, like:
1) Measuring any tangible assets and liabilities that were acquired
2) Measuring any in-tangible assets and liabilities that were acquired
3) Measuring the amount of any non-controlling interest in the acquired business
4) Measuring the amount of consideration paid to the seller
5) Measuring any goodwill or gain on the transaction
Intra-group transactions:
These are commercial or financial transactions that involves two companies of the same group simultaneously i.e. an intercompany transaction occurs when one unit of an entity is involved in a transaction with other unit of the same entity. Now, while these transaction can occur for a variety of reason, they often occur as a result of the normal business relationship that exist between the units of the entity (these unity may be the parent and subsidiary, two division, two subsidiaries, or two department or one entity)."
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