During the current period, Ambrose Limited sold inventories to its parent entity at a profit of $12 000. The inventories cost Ambrose Limited $36 000. At balance sheet date the parent had sold 50% of the inventories to an external party. The consolidation adjustment entry (excluding tax effects) will eliminate unrealised profit amounting to:

Question

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Since the parent entity sold only 50% of the inventories to an external party, the remaining 50% still holds the unrealized profit. The unrealized profit is calculated as $12,000 (total profit) * 50% (unsold inventory) = $6,000. This amount needs to be eliminated in the consolidation process to avoid overstating profits and assets.

During the Current Period, Ambrose Limited Sold Inventories to Its