The effect of an intragroup sale of inventories at a profit, where the inventories have been sold to external parties prior to the end of the reporting period, is that both profit and the inventories asset are overstated.

Question

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An intragroup sale of inventories at a profit would result in the profit being overstated, but the inventories asset would not be affected since they have already been sold to external parties.

The Effect of an Intragroup Sale of Inventories at a Profit