Hello all
I have a conso question that I hope you can help me with.
Entity A and B are both subsidiaries of the Group entity (100%).
Entity A produces machines and books them into inventory. Entity A sells machines to Entity B with a profit.
Entity B books the machine into its asset book.
My question is: How to handle the elimination from a Group point of view?
I assume we need to eliminate the the intercompany sale and COGS in entity A, against the margin in fixed asset in Entity B? What about the monthly depreciations in Entity B? Do we need to eliminate a part of that too?
The applied standard is IFRS.
Thank you in advance
Kind regards
Intercompany eliminations: inventory to asset book
Re: Intercompany eliminations: inventory to asset book
2x yes 
in consolidated accounts, the machines are in fact a self-constructed PP&E and should be recognised at cost (that is - expenditures incurred by A). So in effect, you should be left with PP&E's cost determined in accordance with: https://ifrscommunity.com/knowledge-bas ... equipment/
All other expenditures should be recognised in consolidated P/L. Unfortunately, this means adjusting excess depreciation recognised by Entity B in subsequent periods.
in consolidated accounts, the machines are in fact a self-constructed PP&E and should be recognised at cost (that is - expenditures incurred by A). So in effect, you should be left with PP&E's cost determined in accordance with: https://ifrscommunity.com/knowledge-bas ... equipment/
All other expenditures should be recognised in consolidated P/L. Unfortunately, this means adjusting excess depreciation recognised by Entity B in subsequent periods.
Re: Intercompany eliminations: inventory to asset book
Thank you for the quick reply, Marek!
- I was also wondering: do we show the inventory of Entity A as inventory on a Group level? Or should we re-classify this as an asset in construction?
Almost 100% of the sales of entity A are intercompany (to Entity B).
- The COGS of Entity A contains some payroll costs as the hours logged for the creation of the machines are also included in the inventory valuation. Should we eliminate this as well on a group level? Technically speaking this cost has already been recognized as a payroll cost from a group perspective.
- Regarding the elimination for Entity B, would it be allowed, instead of eliminating the addition and the monthly excess depreciations, to just eliminate the excess depreciation in P&L immediately in the month of the purchase? That would save us a lot of time and follow-up.
- I was also wondering: do we show the inventory of Entity A as inventory on a Group level? Or should we re-classify this as an asset in construction?
Almost 100% of the sales of entity A are intercompany (to Entity B).
- The COGS of Entity A contains some payroll costs as the hours logged for the creation of the machines are also included in the inventory valuation. Should we eliminate this as well on a group level? Technically speaking this cost has already been recognized as a payroll cost from a group perspective.
- Regarding the elimination for Entity B, would it be allowed, instead of eliminating the addition and the monthly excess depreciations, to just eliminate the excess depreciation in P&L immediately in the month of the purchase? That would save us a lot of time and follow-up.
Re: Intercompany eliminations: inventory to asset book
What are your thoughts on these matters given the aim of consolidated financial statements?
https://ifrscommunity.com/knowledge-bas ... tatements/
https://ifrscommunity.com/knowledge-bas ... tatements/
Re: Intercompany eliminations: inventory to asset book
Hi Marek
Here are my thoughts on this:
- I would rather not reclass the inventory to asset in construction.
- The labour cost for assets in construction can be invested with the PP&E, so I suggest to keep the cost.
- The last one is tricky. This is probably not allowed. A better option would be to sell at cost between the subsidiaries, but this may cause issues at customs because the assets are then undervalued.
Kind regards
Here are my thoughts on this:
- I would rather not reclass the inventory to asset in construction.
- The labour cost for assets in construction can be invested with the PP&E, so I suggest to keep the cost.
- The last one is tricky. This is probably not allowed. A better option would be to sell at cost between the subsidiaries, but this may cause issues at customs because the assets are then undervalued.
Kind regards
Re: Intercompany eliminations: inventory to asset book
1. it appears that these assets should be classified as PP&E under construction even before the intra-group sale - this is how they would be classified if constructed within the same entity
2. All eligible costs, including payroll costs, should be capitalised in the PP&E's costs at group level instead of being expensed as COGS in consolidated P/L
3. One-time adjustment could be done only if the amounts are immaterial (note that these can accumulate over time).
2. All eligible costs, including payroll costs, should be capitalised in the PP&E's costs at group level instead of being expensed as COGS in consolidated P/L
3. One-time adjustment could be done only if the amounts are immaterial (note that these can accumulate over time).