The tax effect of eliminating the unrealised profit from an intragroup sale of inventories and adjusting the value of the inventories on hand is recognised as:
A) an increase in income tax expense.
B) an increase in deferred tax liability.
C) a decrease in deferred tax liability.
D) an increase in deferred tax asset.

Question

Quizplus · Accepted Answer

The elimination of unrealised profit from intragroup sales reduces taxable income in the future when the inventory is sold to an external party, creating a deductible temporary difference and resulting in an increase in deferred tax asset.

The Tax Effect of Eliminating the Unrealised Profit from an Intragroup