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What is Intercompany?

  • 10-07-2008 10:54am
    #1
    kluivert
    Registered Users, Registered Users 2 Posts: 2,399 ✭✭✭


    I am drawing a blank on this at the moment.

    Can someone define the critea for two companies to have Intercompany transactions.

    I keep thinking Related Parties for some reason.


Comments

  • #2
    LouOB
    Closed Accounts Posts: 1,181 ✭✭✭LouOB


    kluivert wrote: »
    I am drawing a blank on this at the moment.

    Can someone define the critea for two companies to have Intercompany transactions.

    I keep thinking Related Parties for some reason.

    Intercompany is where co A has a transaction with co B - co A & B are owned by same group

    Related Parties is where co A transacts with co Z (total unknown) but your sister or friend works there. So transaction could be related party if relation or friend can sway transaction - therefore transaction has to be at arms lenght i.e. appear legal at market price etc


  • #3
    Hanley
    Banned (with Prison Access) Posts: 21,981 ✭✭✭✭Hanley


    I believe Intercompany = transactions between parent and sudsidiary/associate.


  • #4
    Jivin Turkey
    Registered Users, Registered Users 2 Posts: 2,966 ✭✭✭Jivin Turkey


    LouOB wrote: »
    Intercompany is where co A has a transaction with co B - co A & B are owned by same group
    This is essentially what intercompany is. Large groups tend to have massive amounts of intercompany balances between the various enties for numerous reasons (funding and tax structure to name a couple). All intercompany balances will be eliminated on the consolidation of the group.

    Intercompany transactions are ALSO classed as related party transactions at an individual company level but not all related party transactions are intercompany.


  • #5
    [Deleted User]
    Posts: 5,121 ✭✭✭ [Deleted User]


    The other big source of intercompany transactions in a company is when the subsidiary buys goods from its parent to resell to a third party. If this wasn't counted as an intercompany transaction and not eliminated on consolidation the revenue (and COS) would be counted twice: first when the parent sells to the sub, then from the sub to the external customer when from the group's point of view the only real economic transaction is the sale to the third party.


  • #6
    Mr. Incognito
    Registered Users, Registered Users 2 Posts: 9,798 ✭✭✭Mr. Incognito


    intercompany trasnaction
    the transaction is between two companies in the same umbrella organisation- eg connected companies, parent-subsidiary

    Related Parties
    Related parties is generall used in legal commentary to describe the relationship of someone who has an invested interest in the transaction.


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