Example $6$: Inter$-$entity transactions

It is quite possible that the two companies trade with each other$-$l$.$e$.$ that the parent company sells goods to the subsidiary company $($or vice versa$).$

If this has happened, then there are two things that we need to be aware of when we come to prepare the consolidated accounts:

$($a$)$ we only want to show receivables and payables from outside the group $-$ we do not want to include receivables and payables between the parent and subsidiary

$($b$)$ we only wish to record profits made as a result of sales outside the group

Company $P$ has a controlling interest in company $$.$

Extracts from the statements of financial position of each company individually as at $31$ December $2010$ are as follows:

$\backslash$table$[[,p,S$