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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Financial Reporting

Case: Parent Arya Ltd holds 60% of Bhanu Ltd. During 2024-25, Arya sold goods costing Rs 80 lakh to Bhanu for Rs 100 lakh. At year end, Bhanu still holds 40% of these goods in stock. In the consolidated financial statements, what is the adjustment to eliminate unrealised profit in closing inventory?

The profit on the intragroup sale is Rs 20 lakh, and 40% of the goods remain unsold, so Rs 8 lakh is eliminated from inventory and profit in full. Ownership percentage is not applied because the sale is downstream and eliminated entirely.

  1. ARs 8 lakh reduction in inventory and consolidated profitCorrect
  2. BRs 20 lakh reduction in inventory
  3. CRs 4.8 lakh reduction in inventory, borne only by the parent
  4. DRs 12 lakh reduction in inventory and profit

Explanation

Total intragroup profit = 100 - 80 = Rs 20 lakh. Unrealised portion = 40% x 20 = Rs 8 lakh. Under Ind AS 110, the full unrealised profit is eliminated for downstream sales. Rs 4.8 lakh wrongly applies the 60% holding percentage.

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