Where an intragroup sale of an asset at a profit has been made and the asset was classified as plant in the selling entity's books, but subsequently classified as inventories in the buying entity's books, a credit adjustment is required against cost of sales in the year of sale.

Question

Quizplus · Accepted Answer

The sale of the asset should be treated as a transfer of inventory between entities, rather than a sale of plant. Therefore, the credit adjustment against cost of sales is required to reflect the transfer of the inventory at its original cost rather than the profit made on the intragroup sale.

Where an Intragroup Sale of an Asset at a Profit