Financial Accounting · Subsidiaries

Intragroup Trading and Unrealised Profit in Consolidation

Updated 11 October 2026 · Fact-checked

Intragroup trading is trade between group companies. In consolidation, you cancel the intragroup sales and purchases, cancel intragroup receivables and payables (after adding cash or goods in transit), and remove the profit on goods still in inventory at the year end. That removed profit is the provision for unrealised profit (PUP).

Understand Intragroup Trading and Unrealised Profit

A group is shown as if it were one single entity. One entity cannot sell to itself. So when a parent sells goods to a subsidiary, or the other way round, the consolidated statements must not show that sale, the matching purchase, or the balance owing between the two companies.

There are two separate jobs. First, cancel intragroup balances and trading. Revenue and cost of sales are both reduced by the intragroup sales figure. Intragroup receivables and payables are cancelled against each other. This does not change profit.

Second, remove unrealised profit. If the buyer still holds some of the goods at the year end, the group has not yet sold them outside. The seller has booked a profit on them, but from the group's view that profit is not earned. You remove it from profit and reduce inventory by the same amount.

Timing differences can stop the balances agreeing. Cash in transit is cash sent by one company but not yet received by the other. Goods in transit are goods sent but not yet recorded by the buyer. You adjust the books of the receiving company first, then cancel. Cash in transit becomes cash in the consolidated statement of financial position. Goods in transit are added to the buyer's inventory.

Who made the sale decides who bears the PUP. If the parent sold, the whole PUP reduces the parent's profit, so group retained earnings fall by all of it. If the subsidiary sold, the PUP reduces the subsidiary's profit, so it is shared between the parent and the non-controlling interest (NCI) according to ownership.

Key formulas to remember

Intragroup sales elimination: Dr Group revenue; Cr Group cost of sales (both by the intragroup sales value); Use the full value of intragroup sales for the year, whether or not goods are still in inventory. Profit is not changed by this entry.
Unrealised profit in closing inventory (mark-up): PUP = intragroup goods still held × mark-up ÷ (100 + mark-up); Use when profit is given as a percentage of cost. A 25% mark-up means profit is 25/125 of selling price.
Unrealised profit in closing inventory (margin): PUP = intragroup goods still held × margin %; Use when profit is given as a percentage of selling price. A 20% margin means profit is 20% of selling price.
PUP adjustment in the statements: Dr Cost of sales (or seller's retained earnings); Cr Group inventory; Applies in the statement of financial position as well as profit or loss. Inventory is shown at cost to the group.
PUP when the subsidiary sells: Subsidiary's profit at reporting date reduced by PUP, then split: NCI share = NCI % × adjusted profit; Also use the adjusted profit in the goodwill-after-acquisition and group reserves workings. A parent sale needs no NCI adjustment.
Cash in transit: Dr Cash; Cr Receivables (receiving company's books); Then cancel the intragroup receivable against the intragroup payable.
Goods in transit: Dr Inventory; Cr Payables (buyer's books), then cancel intragroup balances; The goods in transit are also included in the PUP calculation if they carry intragroup profit.

How to solve Intragroup Trading and Unrealised Profit questions

Use the same order every time. It keeps the adjustments clear and stops you double counting.

1Read the question and note who sold to whom, the intragroup sales for the year and the percentage owned by the parent.
2Deal with in-transit items first: add cash in transit to cash and reduce receivables, and add goods in transit to inventory and payables, in the receiving company's books.
3Cancel intragroup receivables against payables. If they now agree, you have done it correctly. Any remaining difference means a missed transit item.
4Eliminate intragroup sales from group revenue and the same amount from cost of sales.
5Calculate the PUP on goods still held at the year end, using mark-up or margin correctly.
6Post the PUP: reduce group inventory and increase cost of sales (or reduce seller's retained earnings in the statement of financial position workings).
7If the subsidiary was the seller, deduct the PUP from its profit in the net assets working so the NCI and group reserves both bear their share.
8Check the final figures: inventory should be at cost to the group and the group's receivables and payables should include outside parties only.

Quickest way: Four-line objective test routine

When to use it: Use this for multiple choice and number entry questions where you need one group figure quickly.

Write the intragroup sales figure. Revenue and cost of sales both fall by it, so subtract it from the combined totals.
Calculate the PUP in one line: goods still held × fraction of profit (25/125 for a 25% mark-up, or the margin %).
Add the PUP to combined cost of sales and deduct it from combined inventory.
For balances, adjust for transit items, then check receivables and payables fall by the same amount.

Common mistakes in Intragroup Trading and Unrealised Profit

Applying a 25% mark-up as 25% of selling price.
Students see the percentage and apply it directly to the selling price.
Fix: Mark-up is on cost, so profit is mark-up ÷ (100 + mark-up) of selling price. Only a margin applies directly to selling price.
Eliminating only the goods still in inventory instead of all intragroup sales.
Students mix up the sales elimination with the PUP adjustment.
Fix: Remove the full year's intragroup sales from revenue and cost of sales. The PUP is a separate step for unsold goods only.
Forgetting to deal with cash or goods in transit before cancelling balances.
The balances look different and students cancel the smaller one, leaving a stray difference.
Fix: Adjust the receiving company's books first, then cancel. Check that both balances are equal.
Sharing the PUP with the NCI when the parent sold the goods.
Students apply the NCI rule to every PUP.
Fix: Only a subsidiary's sale affects its profit and the NCI. If the parent sold, the whole PUP comes off group retained earnings.
Reducing inventory but not changing profit, or the reverse.
The PUP is thought of as only a statement of financial position item.
Fix: PUP is a double entry. Reduce inventory and reduce profit (through cost of sales or the seller's reserves).
Deducting PUP on all intragroup purchases of the year.
Students use total intragroup sales instead of the amount still held.
Fix: Use only the goods remaining in the buyer's closing inventory at the reporting date.

Worked examples

Example 1

Parent P owns 80% of subsidiary S. During the year P sold goods to S for $60,000 at a mark-up of 25% on cost. At the year end S still held $20,000 of these goods (at the transfer price). Combined revenue is $500,000 and combined cost of sales is $320,000. Calculate consolidated revenue, cost of sales and the PUP.

Show the solution

Eliminate intragroup sales: revenue = $500,000 − $60,000 = $440,000.
Cost of sales is also reduced by $60,000 first: $320,000 − $60,000 = $260,000.
Calculate PUP: $20,000 × 25 ÷ 125 = $4,000.
Add PUP to cost of sales: $260,000 + $4,000 = $264,000.
P sold the goods, so the whole $4,000 reduces group profit and none is shared with the NCI.

Answer: Consolidated revenue is $440,000, consolidated cost of sales is $264,000 and the PUP is $4,000.

Example 2

Parent P owns 75% of subsidiary S. At the reporting date S's receivables include $18,000 owed by P. P's payables show $12,000 owed to S. The difference is cash of $6,000 sent by P that S has not yet received. S also sold goods to P at a 20% margin, and P still holds $30,000 of them at the transfer price. Calculate the cash adjustment, the PUP and the amount of PUP borne by the NCI.

Show the solution

Receipt of cash in transit: S's books show Dr Cash $6,000, Cr Receivables $6,000.
S's receivable from P becomes $18,000 − $6,000 = $12,000, which now equals P's payable of $12,000, so both cancel.
PUP = $30,000 × 20% = $6,000, because the margin applies to selling price.
S made the sale, so the PUP reduces S's profit.
NCI share = 25% × $6,000 = $1,500. P's share is 75% × $6,000 = $4,500.
Group inventory falls by $6,000.

Answer: Cash in transit of $6,000 is added to group cash and the $12,000 balances cancel. The PUP is $6,000, of which $1,500 is borne by the NCI and $4,500 by the parent.

Exam tips

Check from the first line whether the profit is given as mark-up or margin. Many wrong answers come from this alone.
Note the direction of the sale. It tells you whether the NCI is affected, which often decides which option is correct.
Check that intragroup receivables and payables agree after adjusting for transit items. If they do not, you have missed something.
In multiple response questions, decide which statements are true: sales are fully eliminated, PUP only covers goods unsold, and profit is unaffected by cancelling balances.
For number entry, show the PUP calculation on your scratch paper before adding it to cost of sales or taking it from inventory.

Practice questions from Subsidiaries

Intragroup Trading and Unrealised Profit in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Intragroup Trading and Unrealised Profit: frequently asked questions

What is unrealised profit in group accounts?

It is profit one group company records on selling goods to another group company where the goods are still unsold outside the group at the year end. From the group's point of view no profit has been earned yet. You remove it from profit and from inventory.

Does the PUP adjustment affect the non-controlling interest?

Only if the subsidiary sold the goods. Then the PUP reduces the subsidiary's profit and the NCI takes its percentage of the reduction. If the parent sold the goods, the whole PUP reduces the parent's profit and the NCI is unaffected.

How do I treat cash in transit in consolidation?

Add the cash to the receiving company's cash and reduce its intragroup receivable by the same amount. After that, the intragroup receivable and payable should agree and you cancel them. The cash appears in the consolidated statement of financial position.

Do I eliminate intragroup sales if all the goods have been sold on?

Yes. You still remove the intragroup sales from revenue and cost of sales, since the group has not made an external sale until the goods leave the group. There would be no PUP because no goods remain in inventory.