GROUP OF COMPANIES - 2

Inter-company balances

 

 

Examples include:-

 

-          monies loan from parent company to the subsidiary company

 

-           monies loan from subsidiary company to the parent company

 

-           monies owed by the parent company to the subsidiary company as a result of goods sold to the parent company by the subsidiary company

 

-           monies owed by the subsidiary company to the parent company as a result of goods to the subsidiary company by the parent company

 

 

 

 

Consolidated Balance Sheet

 

 

It refers to both the parent’s Balance Sheet and that of the subsidiary’s Balance Sheet.

 

It is important that all inter-company balances be eliminated when the consolidated

 

Balance Sheet is prepared.

 

If no elimination is done, then the Consolidated Balance Sheet will show an inflated figure

 

for the group’s assets and liabilities.

 

If the elimination process is done, then the consolidated Balance Sheet should reflect the

 

group’s assets and liabilities fairly.

 

 

 

It is important that all inter-company balances be eliminated when the consolidated

 

Balance Sheet is prepared.

 

If no elimination is done, then the Consolidated Balance Sheet will show an inflated figure

 

for the group’s assets and liabilities.

 

If the elimination process is done, then the consolidated Balance Sheet should reflect the

 

group’s assets and liabilities fairly.

 

 

 

Example:

 

 

The trade debtors should reflect the total amount receivable by the group of companies

 

from external parties.

 

The same goes with trade creditors.

 

The trade creditors should relate to the amount payable by the group of companies to

 

external parties.