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

Case: Parent Sagar Ltd sold inventory costing ₹6,00,000 to its 80%-owned subsidiary Tara Ltd for ₹8,00,000 during FY 2024-25. At year end Tara still holds 25% of these goods. Tax effects are ignored. In the consolidated balance sheet as at 31 March 2025, by what amount should closing inventory be reduced for unrealised profit?

Inventory is reduced by ₹50,000. The intragroup profit is ₹2,00,000 and 25% of the goods remain unsold, so unrealised profit is ₹50,000. Ind AS 110 requires eliminating it in full, without scaling it down for the parent's 80% holding.

  1. A₹2,00,000
  2. B₹50,000Correct
  3. C₹40,000
  4. D₹1,60,000

Explanation

Profit on the intragroup sale is 8,00,000 - 6,00,000 = 2,00,000. Goods still held are 25%, so unrealised profit = 2,00,000 x 25% = 50,000. Ind AS 110 requires full elimination irrespective of the NCI share, so the 80% proportion (40,000) is wrong.

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