Question

Ariel owns 80% of the ordinary share capital of Stack. Stack sells goods for resale to...

Ariel owns 80% of the ordinary share capital of Stack. Stack sells goods for resale to Ariel at cost plus 50%. Ariel had goods purchased from Stack in inventory at the group’s year end valued at $66,000.

At what amount will these goods be included in inventory in the consolidated statement of financial position?

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Answer #1
  • In the given Question, Ariel is Holding Company and Stack is Subsidiary Company.
  • Stack sold goods to Ariel at cost plus 50%. However some of the goods lying unsold till the end of FY.

Calculation of Unrealised Profit of Stack Ltd

1/2 (50%) Profit on Cost = 1/3rd Profit on Sale

Therefore,

Unrealised Profit of Stack ($) = 66,000 * 1/3

= $22,000

As per Ind AS 110 "Consolidated Financial Statement"

Entries to be Passed for Adjustment are :-

(i) Sales/Revenue Dr. 66,000

To Purchase 66,000

(ii) Consolidated P or L Dr. 22,000

To Trade Receivable 22,000

Hence, the Stock in the Consolidated Financial Statement shall be of such amount as Reduced by entire stock lying unsold i.e. of $66,000 and Profit of Subsidiary will be reduced by $22,000 as shown in Entry No. (ii).

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