Question

How much of the profit is eliminated at the end of the period?

H sold inventory to S. The cost of the inventory was 100, the selling price was 150. S sold out that inventory for 95 which cost S 60.

H owns 80% of S.

Subjects: group accounting, consolidation, IFRS.

Answer 1

Profit to be eliminated from Holding Company , ie H is due to intercompany transfer and H has already recorded a profit of 50 on sale of inventory costing 100. However, out of 150 tansferred 60 is sold by S.

Therefore cost of unsold in H books = (150-60)*100/150

= 60

Therefore profit related to unsold inventory costing 60 = (150-100)/100*60

= 30 is required to be eliminated.

Also Profit on sale by S = 95-60 = 35

Minority holding of the profit = 35*20%

= 7

Therefore total profit to be eliminated is 30+7 = 37 at the end of the period.