Question

how will the elimination of unrealized intercompany inventory profit recorded on the subsidiary's book after consolidating retained earnings

Answer 1

Inventory transfers are very common in an inter-company transaction. All revenue and expenses items recorded by the participants must be eliminated fully for the preparation of consolidated financial statements. This elimination ensures that only the historical cost of the inventory is included in the consolidated statements. Unrealized gains from corporations must be fully excluded and proportionately allocated to the selling subsidiary 's shareholder groups. So the consolidated retained earnings must be deducted by the parent company's proportionate share of the unrealized profit on the books of account of the subsidiary company.