(c) Intercompany trading
Matters:
– Materiality of the intercompany balance and the inventory
– At Group level the intercompany balances must be eliminated
– If they are not eliminated, Group current assets and liabilities will be overstated
– A provision for unrealised profit may need to be recognised in respect of the inventory

Evidence:
– Review of consolidation working papers to confirm that the intercompany balances have been eliminated
– A copy of the terms of sale scrutinised to find out if a profit margin or mark up is part of the sales price
– A reconciliation of the intercompany balances between Roberts Co and Marks Co to confirm that there are no other reconciling items to be adjusted, e.g. cash in transit or goods in transit
– Copies of inventory movement reports for the goods sold from Marks Co to Roberts Co to determine the quantity of goods transferred
– Details of the inventory count held at Roberts Co at the year end, reviewed to confirm that no other intercompany goods are held at the year end
Maximum marks 6