Where an intragroup sale of an asset has been made and the asset was classified as inventories in the selling entity's books, but subsequently classified as plant in the buying entity's books, all depreciation recognised in the buying entity's books must be eliminated on consolidation.

Question

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On consolidation, intragroup transactions are eliminated to avoid double counting of income or expenses. However, the depreciation recognized on the asset (now classified as plant) in the buying entity's books is a legitimate expense reflecting the use of the asset in its operations and should not be eliminated. The initial profit or loss on the intragroup sale would be eliminated, but not the subsequent depreciation.

Where an Intragroup Sale of an Asset Has Been Made