Question
Hi, I'm studying Corporate Accounting. Can someone please help me to answer these theory question? Thank you very much Issue 1: Our accountant has informed
Hi, I'm studying Corporate Accounting. Can someone please help me to answer these theory question? Thank you very much
Issue 1: Our accountant has informed me that we need to eliminate the intra-group transactions before we prepare the consolidated financial statements. I don't understand why we need to record these transactions in the first place, when we end up eliminating them. I don't have an accounting background, but it makes sense not to record these transactions in any books when we end up deleting them in the worksheet later.
Issue 2: Our Parent company often sells inventory to the Subsidiary company at a profit. I do not understand why the entry involves reducing inventory. The inventory is still on hand in the group so why would we need to credit this account in the journal entry.
Issue 3: Following on from Issue 2, I do not understand why we sometimes reduce Inventory and yet other times we reduce Cost of Goods sold expense. What situation would require us to use this account and what is the reason for this credit to Cost of Goods sold expense?
Issue 4: My next issue relates to the sale of non-current assets within the Group. The adjustments to Depreciation and Accumulated Depreciation in the worksheet is very confusing. I don't understand why we should be making any adjustments to these accounts which have nothing to do with the sale of a non-current asset. Why do we need this entry?
Issue 5: My final question relates to when a company within the Group pays or declares a dividend. To my best understanding, all dividends paid and declared by our Parent company must be eliminated, however we do not need to worry about the Subsidiary's dividends as this is all controlled by the Parent company. Please confirm if my understanding is correct with an explanation.
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