Slide 1

INTRA-GROUP TRANSACTIONS:
UNREALISED PROFITS AND ASSET
VALUATION
 Slide 2

1.

H sells to S goods at a cost of RM20,000

No profit was made in the intra-group sale of

goods as the goods were transacted at cost.

2.

H sells to S goods costing RM20,000 for

RM25,000

Intra-group profits of RM5,000 will be

recorded in the books of H.
 Slide 3

i)
By end of the year,
S sold the goods to

an outsider of the
group

Intra-group profits of RM5,000 recognized in

Hs books: realized profits as the goods were
subsequently sold by S to an outsider of the
group as at year end.

ii) The goods

remain with S as
at end of year

Intra-group profits of RM5,000 recognised in

H: unrealized profits as the goods are still
held by a member of the group as at year end.

Unrealized profits

From the groups point view because the

goods have not left the groups boundary.
 Slide 4

ELIMINATION OF UNREALISED
PROFITS: INCOME EFFECT

How much of the RM5,000 unrealized profits

need to be eliminated?

Partial vs Full elimination

MFRS 10 paragraph B 86 (c) requires full

elimination.

Are the NCI affected by the adjustment for

unrealized profits/losses?

Group vs NCI

Depends on the direction of inter-company

sale

P S: NCI are not affected

S P: Profits from the intra-group sale would

have been recognized in the books
of S. Elimination of unrealized
profits to be apportioned between
the group (CPL) and NCI.
 Slide 5

ELIMINATION OF UNREALISED
PROFITS: ASSET VALUATION

P sold goods costing RM20,000 to S for

RM25,000. As at year end, the goods are still
with S.

In P In S
Sales 25,000 Purchases 25,000
Cost 20,000
Profit 5,000 Inventory(SFP) 25,000

ON CONSOLIDATION,
To eliminate unrealized profits and to show the
inventory (S) in the CSFP at the external cost
to the group,

Dr CPL RM5,000
Cr Inventory (S) RM5,000
 Slide 6

1.INTRA-GROUP SALE OF TRADING

STOCK

S [a 60% owned subsidiary] sold to P goods

costing RM15,000 at a mark-up on cost of
20%. As at year-end, P sold only three-
quarter of the goods it bought from S. P
has paid one-half of the amount due to S.

S P: NCI would be affected by the

elimination of unrealized profits

In S In P
Selling 1.2x15,000 Purchases 18,000
price =18,000
Cost 15,000 COS
Profit 3,000 Inventory
x 18,000 = RM4,500

Dr Bank 9,000 Dr Purchases 18,000

Dr Receivables 9,000 Cr Payables 9,000
Cr Sales 18,000 Cr Bank 9,000

UNREALIZED PROFITS: x 3,000 = RM750

EXTERNAL COST OF INVENTORY IN P:
x 15,000 = RM3,750
 Slide 7

ON CONSOLIDATION,

To eliminate unrealized profits and to show the

inventory in the CSFP at the external cost to
the group,

Dr CPL (0.6 x 750) RM450

NCI (0.4 x 750) RM300
Cr Inventory (P) RM750

To eliminate amount due to S from P

Dr Payables (P) RM9,000

Cr Receivables (S) RM9,000
 Slide 8

2.INTRA-GROUP SALE OF NON-

DEPRECIABLE ASSET

During the year 2009, P sold to S a piece of

land costing RM180,000 for RM250,000.
As at year-end, the land is still with S.

P S: NCI will not be affected by

elimination of unrealized profits.

In P In S
Dr Bank RM250,000 Dr Land RM250,000
Cr Land 180,000 Cr Bank RM250,000
Cr P & L 70,000

SP 250,000
COST 180,000
UNREALIZED PROFIT 70,000
ON CONSOLIDATION,
To eliminate unrealized profits and to show the
land in the CSFP at the external cost to the
group,

Dr CPL RM70,000
Cr Land (S) RM70,000
 Slide 9

3.INTRA-GROUP SALE OF DEPRECIABLE

ASSET

During the year 2009, P sold to S an

equipment for RM91,000. The equipment
was bought by P in 2006 for RM120,000.
Groups policy on equipment is to
depreciate over a useful life of ten years
making a full-year provision in the year of
purchase and none in the year of disposal.
As at year-end, the equipment is still with S.

P S: NCI should not be affected by

the elimination of unrealized
profits

2009
In P In S
SP : 91,000 Equipment 91,000
NBV : 120,000(120/10x 3) Depn per year = 91,000/7
= 84,000 = 13,000
UNREALIZED PROFITS 7,000
 Slide 10

On consolidation,
To eliminate unrealized profits and to show
equipment in the CSFP at the NBV to the group,

Dr CPL RM7,000
Cr Equipment (S) RM7,000

From 2009,

Yearly depreciation provided by S = 13,000

As should be provided from the groups
point of view (120,000/10 years) = 12,000
Overprovision by S 1,000

To correct for depreciation overprovided and to

record gradual realization of unrealized profits

Dr Acc depn equipment(S) RM1,000

Cr CPL* RM1,000

* gradual realization of unrealized profits to be

effected to the profit of the seller company.