Acca financial Accounting (FA) Study Text ac ca (FA)

Intra-group trading and unrealised profit in inventory  

When one group entity sells goods to another a number of adjustments may be 

needed. 

•

 

Current accounts must be cancelled (see earlier in this chapter). 

•

 

Where goods are still held by one entity at the reporting date, any 

unrealised profit must be cancelled. 

•

 

Inventory must be included at original cost to the group. 

 

 

---

 

Chapter 21 

KAPLAN PUBLISHING

 

423 

Adjustments for unrealised profit in inventory 

1 

Determine the value of closing inventory still held within the group at the 

reporting date that are the result of intra

­

group trading. 

2 

Use either the profit mark

­

up or sales margin to calculate how much of that 

value represents profit earned by the selling entity. The question will 

identify whether goods have been sold subject to either a mark

­

up or 

margin as appropriate. 

3 

Make one of the following adjustments: