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

Case: Parent Kaveri Ltd sold goods costing Rs 80 lakh to its 75%-owned subsidiary Lohit Ltd for Rs 100 lakh. At the year-end, Lohit still holds 40% of these goods in inventory. Ignore tax. In the consolidated financial statements, what is the unrealised profit to be eliminated from inventory and profit?

The unrealised profit eliminated is Rs 8 lakh. Profit on the intragroup sale is Rs 20 lakh, and 40% of the goods remain unsold, so Rs 8 lakh is removed in full from consolidated inventory and profit, irrespective of the parent's 75% holding.

ARs 20 lakh
BRs 8 lakhCorrect
CRs 6 lakh
DRs 5 lakh

Explanation

Total profit on the sale = 100 - 80 = Rs 20 lakh. Unsold portion is 40%, so unrealised profit = Rs 8 lakh. Under Ind AS 110, intragroup profit is eliminated in full, regardless of NCI. Rs 6 lakh wrongly applies the 75% holding to the elimination.

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