A parent company owns 80% of the issued capital of its subsidiary.On consolidation,a sale of inventories between parent and subsidiary will be eliminated as follows:
A) 20% of sale amount.
B) 80% of sale amount.
C) 100% of sale amount.
D) not eliminated.

Question

Quizplus · Accepted Answer

When a parent company owns 80% of the issued capital of its subsidiary, it means that the parent company has significant control over the subsidiary. Therefore, any sale of inventories between the parent and the subsidiary is considered an internal transaction and should be eliminated in consolidation. Since the parent company owns 80% of the subsidiary, it means that 100% of the sale amount is eliminated, not just a portion of it. Therefore, the correct answer is C – 100% of sale amount.

A Parent Company Owns 80% of the Issued Capital of Its