Advance Accounting - Chapter 5

Payables and receivables in the group statement of financial position include balances with associate companies

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In a downstream sale, when a parent sells to its subsidiary, non-controlling interests’ share of current profit is reduced by the latter’s share of the unrealized profit.

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The parent’s theory underlies the procedure for reducing non-controlling interests’ share of current profit with their share of unrealized profit arising from an upstream sale.

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A profit from an intercompany sale would result in either a higher cost of sales in the income statement or a higher inventory balance in the statement of financial position of the buying company.

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If an item purchased at a marked-up price from a group company in the previous year remains unsold at the end of the current year, group inventory and gross profit will have to be reduced.

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If a subsidiary sells equipment to its parent in the current year at a loss because the value of the equipment is impaired.

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Revenue is recognized in group accounts only when the control of inventory are transferred to a third party

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An adjustment needs to be made to the unrealized profit included in the inventory balance to avoid the understatement of group profits and the overstatement of group assets.

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If an item purchased at a marked-up price from a group company in the previous year is resold in the current year, group gross profit will increase and group beginning retained earnings will reduce.

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Dividend income in the profit or loss of a parent company should be eliminated against dividend payable in the statement of financial position of a subsidiary company

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• FALSE