On 1 January 2022, Cowboys Ltd acquired all the issued shares in Magpies Ltd. At that date, the inventory of Magpies Ltd had a fair value of $20 000 more than its carrying amount. By 30 June 2022, 75% of the inventory was sold to an entity outside of the group. The business combination valuation consolidation adjustment for inventories as at 30 June 2023 will include:
A) a debit to inventories of $15 000.
B) a debit to cost of sales of $5 000.
C) a debit to inventories of $15 000 and a debit to cost of sales of $5 000.
D) a credit to inventories of $15 000 and a debit to cost of sales $5 000.

Question

Quizplus · Accepted Answer

By 30 June 2022, 75% of the inventory was sold, leaving 25% unsold. The adjustment for the unsold inventory is 25% of $20,000, which is $5,000. This amount is debited to cost of sales to adjust the carrying amount to fair value.

On 1 January 2022, Cowboys Ltd Acquired All the Issued