Asked by abdullah Mohammed on Jun 05, 2024
Verified
Explain why it is necessary to adjust unrealised profit in opening inventory on consolidation.
Unrealised Profit
Profit that has been generated but not yet realized through a transaction, such as an increase in value of an investment that has not yet been sold for cash.
Opening Inventory
The value of a company's inventory at the beginning of an accounting period, which is carried over from the end of the previous period.
- Discern and correct for unrealized financial gains within the process of combining entities.
Verified Answer
JT
Jessica TorresJun 10, 2024
Final Answer :
Adjustment of unrealised profit in opening inventory:
- All worksheet adjustments made at the end of the previous financial year that affected closing retained earnings must be adjusted against opening retained earnings in the current year.
- When unrealised profits on intragroup sales of inventory are adjusted at the end of the previous year,an adjustment to opening inventory in the current year is required so that consolidated retained earnings at the commencement of the current year equals consolidated retained earnings at the end of the previous year.
- All worksheet adjustments made at the end of the previous financial year that affected closing retained earnings must be adjusted against opening retained earnings in the current year.
- When unrealised profits on intragroup sales of inventory are adjusted at the end of the previous year,an adjustment to opening inventory in the current year is required so that consolidated retained earnings at the commencement of the current year equals consolidated retained earnings at the end of the previous year.
Learning Objectives
- Discern and correct for unrealized financial gains within the process of combining entities.
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