Sales and purchases between companies within the same accounting group.
Due to internal management reasons, and tax transfer pricing regulations, it is unlikely in practice that the sale of goods between two group companies would be at cost.
The seller would make its normal profit on the sale.
This would be a genuine profit in the accounts of the seller.
However if the buyer has not sold the goods they have not left the group, and viewing the group as a single entity, no profit should be recognised.
A single entity cannot make a profit from selling goods to itself. The profit is said to be unrealised from the group perspective.
For this reason any profits or gains on internal trading are removed from the group accounts on consolidation.
Also known as internal transfers.