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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Arjun Ltd holds 60% of Bhima Ltd, acquired several years ago. During the year Arjun Ltd sold goods costing Rs 4,00,000 to Bhima Ltd at Rs 5,00,000. At the year end, Bhima Ltd still holds half of these goods in closing stock. For consolidation, what unrealised profit is to be eliminated from closing stock?

The unrealised profit to eliminate is Rs 50,000. The intragroup sale gave a profit of Rs 1,00,000, and half the goods remain in the buyer's closing stock. AS 21 requires full elimination of unrealised intragroup profit, regardless of the parent's 60% holding.

  1. ARs 1,00,000
  2. BRs 30,000
  3. CRs 50,000Correct
  4. DRs 25,000

Explanation

Total profit on the sale = 5,00,000 - 4,00,000 = Rs 1,00,000. Half of the goods remain unsold, so unrealised profit = Rs 50,000. AS 21 requires intragroup profits in stock to be eliminated in full, so no proportion of 60% is applied. Rs 30,000 wrongly applies the parent's holding percentage.

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