Intragroup Transactions Issue 2022

Issue 1
Intragroup transactions are the transactions which are entered into
between two companies of the same group simultaneously. They
are a part of the transactions only because they are eliminated at
the time of consolidation. They are useful in tracking the
differences which occur at the time of arbitration and in settling the
disputes happening between the companies. Without recording
them, tracing the intra-company transactions and identifying the
correct profits of an entity becomes a lengthier process. In order to
maintain the accuracy in the books of accounts and to quickly
settle any discrepancies, it is necessary to record the intragroup
transactions.

Issue 2
• The intragroup transactions are mainly recorded to
understand the total amount of profits which are
entered into by the entity. In case of sale of inventory,
the sales made to the other company may be further
sold by the company to outside parties. Hence, the
profits may further increase in case of such inventories.
To gain an understanding of these total profits, the
inventory first sold by the company is recorded as a sale
and there is a reduction in the total inventories of the
parent company. Any further profits are calculated on
the amount at which the subsidiary purchases the
goods.

Issue 3
• The goods sold by a parent company to a subsidiary
company are always not sold by a subsidiary to the
outsiders. Sometimes, these may also be lying with the
subsidiary. In these circumstances, it can be said that
the profit has not been realized by the parent company.
However, there is a reduction in the inventory levels of
the parent company. To reflect the fact that the profit
has not yet been realized, parent companies tend to
reduce the cost of goods sold from the inventory and
not the price at which they are sold.