CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Financial Reporting
Case: Parent Rohan Ltd. holds 75% of Sneha Ltd. During 2024-25 Rohan sold goods costing Rs 80 lakh to Sneha for Rs 100 lakh. At year end, Sneha still holds 40% of these goods. In consolidated financial statements, what is the unrealised profit to be eliminated from closing inventory?
The unrealised profit is Rs 8 lakh, being 40% of the Rs 20 lakh margin on the sale. Intragroup profits are eliminated in full under Ind AS 110, so no adjustment for the parent's 75% holding is made when it is the parent selling to the subsidiary.
- ARs 8 lakhCorrect
- BRs 20 lakh
- CRs 6 lakh
- DRs 5 lakh
Explanation
Total profit = 100 - 80 = Rs 20 lakh. Unsold portion is 40%, so unrealised profit = Rs 8 lakh. It is eliminated in full for a downstream sale under Ind AS 110; applying 75% would give Rs 6 lakh, which is wrong. Rs 5 lakh arises from 25% share.
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