Asked by Alfred Lopez on Jun 23, 2024
Verified
During the current period, Ambrose Limited sold inventories to its parent entity at a profit of $12 000. The inventories cost Ambrose Limited $36 000. At balance sheet date the parent had sold 50% of the inventories to an external party. The consolidation adjustment entry (excluding tax effects) will eliminate unrealised profit amounting to:
A) $1 000.
B) $18 000.
C) $6 000.
D) $36 000.
Unrealised Profit
Unrealised profit refers to profits that have been generated on paper through an investment's increased value but have not yet been realized through a sale.
Inventories
Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials to be consumed in the production process.
External Party
An individual or organization that is separate from the entity being referred to and not directly involved in its operations or management.
- Absorb and implement the concept of unrealized financial gains and losses in intragroup operations, acknowledging the necessity of their exclusion in consolidated financial summaries.
- Acknowledge the procedure for discerning and implementing the correct consolidation adjustment entries connected to sales revenue, cost of sales, and inventory.
- Comprehend the process for the elimination of intragroup profits or losses on inventories and their tax effects.
Verified Answer
Learning Objectives
- Absorb and implement the concept of unrealized financial gains and losses in intragroup operations, acknowledging the necessity of their exclusion in consolidated financial summaries.
- Acknowledge the procedure for discerning and implementing the correct consolidation adjustment entries connected to sales revenue, cost of sales, and inventory.
- Comprehend the process for the elimination of intragroup profits or losses on inventories and their tax effects.
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