Skip to content

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

Case: Veda Industries Ltd. sold goods costing Rs 80 lakh to its 75%-owned subsidiary Sagar Components Ltd. for Rs 100 lakh during 2024-25. At year-end, 40% of these goods remain unsold in Sagar's inventory. Ignore tax. In the consolidated financial statements, what adjustment is required for unrealised profit in closing inventory, and how is it treated?

Eliminate Rs 8 lakh of unrealised profit from closing inventory and consolidated profit. Profit on the intra-group sale is Rs 20 lakh and 40% remains unsold. Because the parent sold to the subsidiary, the sale is downstream and the whole elimination is borne by the parent's owners, not NCI.

  1. AEliminate Rs 8 lakh from inventory and from consolidated profit, fully attributable to the parent in a downstream saleCorrect
  2. BEliminate Rs 8 lakh, shared 75:25 between parent and NCI
  3. CEliminate Rs 20 lakh from inventory and profit
  4. DEliminate Rs 6 lakh as only the parent's 75% share is unrealised

Explanation

Profit on the transfer = 20 lakh; 40% unsold = Rs 8 lakh unrealised. Sale is by parent to subsidiary (downstream), so the entire elimination is charged to the parent's owners, not shared with NCI. Sharing 75:25 is the upstream treatment; Rs 6 lakh wrongly applies proportionate elimination.

Did you get it right without looking?

One question tells you little. A timed set on Financial Reporting shows your real accuracy, how long you take and where you lose marks.

Practise Financial ReportingFree diagnostic mock

More Financial Reporting questions