Iva Davies is the CEO of Rock Enterprises Ltd. He has contacted you and asked for your advice on a number of technical issues relating to accounting for intra-group transactions. He has asked that you address each of the following questions and provide clear and practical advice in your explanation.

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. (3 marks)

Issue 2: Our Parent company often sells inventory to the Subsidiary company at a profit. I do not understand why we sometimes reduce the inventory account but at other times we credit and reduce Cost of Goods sold account. What is the reason for both? (3 marks)

Issue 3: 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? (3 marks)

Issue 4: If our Parent company sells inventory during the current year to the Subsidiary company and it sells 100% of this inventory to an external party by financial year end (30 June), am I correct in saying we do not need to make an entry for this intra-group transaction? (3 marks)

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. (3 marks)