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CA Intermediate · Advanced Accounting · AS 21 Consolidated Financial Statements

Rohan Ltd holds 75% of Sagar Ltd. During 2025-26 Rohan Ltd sold goods costing ₹6,00,000 to Sagar Ltd for ₹8,00,000. At 31 March 2026, Sagar Ltd still holds 40% of these goods in its closing stock. By how much should the unrealised profit be eliminated from consolidated closing inventory and the profit, and how is it dealt with?

Eliminate ₹80,000, charged entirely to the parent's share. Profit on the intra-group sale is ₹2,00,000 and 40% of the goods remain unsold, giving ₹80,000 of unrealised profit. Because the parent sold to the subsidiary (downstream), the minority interest is not affected.

  1. A₹80,000, wholly borne by the parent's share of profitCorrect
  2. B₹80,000, shared 75:25 between parent and minority
  3. C₹2,00,000, wholly borne by the parent
  4. D₹60,000, wholly borne by the parent

Explanation

Total profit on sale = 8,00,000 - 6,00,000 = ₹2,00,000. Goods unsold = 40%, so unrealised profit = ₹80,000. Since the seller is the parent (downstream), the whole elimination is borne by the parent's share, not shared with the minority.

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