ExpertEasy2 marksMultiple Choice
ACCA · Question 31 · Consolidated Financial Statements
In a consolidated statement of financial position, how are intra-group receivable and payable balances treated?
In a consolidated statement of financial position, how are intra-group receivable and payable balances treated?
Answer options:
A.
They are added together to show total group exposure.
B.
They are cancelled out completely against each other.
C.
Only the parent's receivable is cancelled; the subsidiary's payable remains.
D.
They are cancelled out only to the extent of the parent's ownership percentage.
How to approach this question
Remember the single entity concept. A single company cannot owe money to itself.
Full Answer
B.They are cancelled out completely against each other.✓ Correct
The core principle of consolidation is to present the group as a single economic entity. A single entity cannot owe money to itself. Therefore, all intra-group receivables and payables must be cancelled out (eliminated) completely in the consolidated statement of financial position.
Common mistakes
Thinking that elimination is proportional to ownership percentage (e.g., only eliminating 80% if it's an 80% subsidiary).
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