1 Groups and consolidation: an overview

2
Intra-group trading 
Intra-group sales and purchases are eliminated from the consolidated statement of profit or loss (IFRS 
10, para. B86(c)).
Like the consolidated statement of financial position, the consolidated statement of profit or loss should 
deal with the results of the group as those of a single entity. When one company in a group sells goods to 
another, an identical amount is added to the sales revenue of the first company and to the cost of sales 
of the second. Yet as far as the entity's dealings with outsiders are concerned, no sale has taken place.
The consolidated figures for sales revenue and cost of sales should represent 
sales to
, and 
purchases 
from, outsiders
. An adjustment is therefore necessary to reduce the sales revenue and cost of sales 
figures by the value of intra-group sales during the year. 
We have also seen in the last chapter that any unrealised profits on intra-group trading should be 
excluded from the figure for group profits. This will occur whenever goods sold at a profit within the 
group remain in the inventory of the purchasing company at the year end. The best way to deal with this 
for the consolidated statement of profit or loss is to 
calculate the unrealised profit on unsold inventories 
at the year end and reduce consolidated gross profit by this amount
. Cost of sales will be the balancing 
figure. 
 EXAM FOCUS POINT 
The treatment of intra-group trading is very likely to be tested in an exam question on the consolidated 
statement of profit or loss. 
BPP Tutor Toolkit Copy

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PART G: PREPARING SIMPLE CONSOLIDATED FINANCIAL STATEMENTS 
 
448
 
2.1 Example: intra-group trading 
Suppose in our earlier example (Section 1.1) that S Co had recorded sales of $5,000 at a gross margin 
of 40% to P Co during 20X1. 50% of the goods remained in P Co's inventories at
31 December 20X1. Prepare the revised consolidated statement of profit or loss. 
Solution 
The consolidated statement of profit or loss for the year ended 31 December 20X1 would now be as follows. 
$
Revenue (75 + 38 – 5*) 
108,000 
Cost of sales (30 + 20 – 5* + 1(W)) 
46,000 
Gross profit (45 + 18 – 1(W)) 
62,000 
Administrative expenses 
22,000 
Profit before taxation 
40,000 
Income taxes 
12,000 
Profit for the year 
28,000 
Profit attributable to: 
Owners of the parent (balancing figure) 
26,250 
NCI ((25% 

8,000) – 250(W)) 
1,750 
28,000 
Movement on retained earnings 
Group profit for year 
26,250
Retained earnings brought forward 
99,750 
Retained earnings carried forward 
126,000 
* to remove the intra-group sale 
Working 
Provision for
unrealised profit
$
Sale price
100% 
5,000 
Cost price
60% 
(3,000) 
Gross profit
40% 
2,000 
Unrealised profit (2,000 

50%) 
1,000 
Unrealised profit attributable to NCI (1,000 

25%) 
250 
As we saw in the last chapter, a provision will be made for the unrealised profit against the group 
inventories figure in the consolidated statement of financial position.