ACA Corporate Reporting Practice Questions - ICAEW ACA Advanced Level Corporate Reporting Exam

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A parent sells inventory to its wholly owned subsidiary at a markup. At the year end, some of that inventory remains unsold by the subsidiary. What consolidation adjustment is required for the unrealised profit?

No adjustment, because the sale is a genuine external transaction Recognise the full intra-group profit as consolidated revenue Eliminate the unrealised profit, reducing consolidated inventory and consolidated profit Transfer the unrealised profit to other comprehensive income

Correct Answer:

Eliminate the unrealised profit, reducing consolidated inventory and consolidated profit

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