Scenario

Intercompany debt, both long term and short term, arises frequently. In some cases, intercorporate borrowings may arise because an affiliate/subsidiary can borrow at a cheaper rate than others, and lending to other affiliates/subsidiaries may reduce the overall cost of borrowing. In other cases, intercompany receivables/payables arise because of intercompany sales of goods or services or other types of intercompany transactions.

Required:

Discuss how intercompany transactions and debts should be treated for consolidation purposes, in both the statement of financial position and the statement of comprehensive income.

What 4 major problems may arise with intercompany debt between a parent and a subsidiary or between subsidiaries in different countries?

NB: refer to the related IFRSs and IASs in your discussion and provide reference. Type so that I can copy and paste to Word. You will get a thumbs up!