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Its depending on the transfer of title :
1 - IF the title transferred when the items packed and shipped :
Parent books : DR Account receivables - Subsidiary
CR Inventory
Subsidiary books : CR : Merchandise in transit
DR : Accounts Payable - Parent
2 - IF the title transferred on delivery :
Parent books : DR Merchandise In transit
CR Inventory
Subsidiary books : no entry recorded unless Items is received
The adjustment should be made in the account of the recipient..Say for example S purchase goods from P and the good is in transit at the year end. You should recognised an inventory in the account of S and adjust cash or payable account.
That is
Dr. Inventory of S
Cr. Cash/payable of S
This is done prior to consolidation.
Parent & subsidiary (inter-group) transactions will be eliminated eventually. Go with Mr. Ahmed Amin.
The items is to be treated as if with the Parent company.
The inventory is still held within the group, so the group as a unit has not made any external sale of these inventories, so the profit made by the selling entity should be included in the cost of the closing inventory of the buyer entity and for consolidation purposes it needs to be eliminated as unrealised gain.
Secondly, the as per the agreed term of transferring the risks and rewards as per IAS18 the sales and recording of inventory shall be recorded.
I agree with Mr. Ahmed Amin answer
up on two choices the question has, the answer is A
If the term and conditon are satisfied then sale and purchase should be record by both company.
Depends On Company Policy how they are treating Intra Group.
In Intra-Group Transaction the treatment of Items in Transit should be recorded in the accounts who made to transit either A) Parent Or B) Subsidiary.
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