Question

Companies A, B and C are all part of the one economic entity, but all these...

Companies A, B and C are all part of the one economic entity, but all these are separate legal entities and are required to prepare their own financial statements.

Company A sold Company B inventory that cost $56 000 for $78 000.

At the end of the same period Company B has three-quarters of that inventory still on hand and the rest has been sold to an entity outside the economic group.

At what amount should the inventory remaining in Company B be presented in Company B's own financial statements?

Business   Accounting   
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Answer #1

Any intra-group transactions which have an effect of inflating the group profits are to be eliminated while preparing the consolidated financial statements of the economic group.

However, there is no such restriction on presentation of intra-group transaction in the seperate financial statements of the units of an economic group.

Accordingly, B will value the inventory at $ 78,000 * 3 / 4 = $ 58,500 at the cost to B, in Company B's own financial statements.

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