Woody Plc sold inventory items to its subsidiary Buzz Lightyear Plc and had the following intercompany transactions:
Cost of inventory €300 000 sold for €375 000 for the year ended 30 June 2012.One third of the inventory items were sold by Buzz Lightyear Plc to external parties before the financial year end 30 June 2012.
Cost of inventory €100 000 sold for €75 000 for the year ended 30 June 2013.Half of the inventory items were sold by Buzz Lightyear Plc to external parties before the financial year end 30 June 2013.
Ignoring taxes,which of the following statements is correct with respect to this transaction only for the year ended 30 June 2013

Question

Quizplus · Accepted Answer

Consolidated profit will increase by €62 500.The profit on the sale of the inventory is €75,000 - €100,000 = €25,000. Since half of the inventory was sold to external parties, the consolidated profit will increase by €25,000 * 50% = €12,500. The other half of the inventory was sold to Buzz Lightyear Plc, so the consolidated profit will also increase by the profit on this sale, which is €375,000 - €300,000 = €75,000. However, since only half of this inventory was sold to external parties, the consolidated profit will only increase by €75,000 * 50% = €37,500. Therefore, the total increase in consolidated profit is €12,500 + €37,500 = €62,500.

Woody Plc Sold Inventory Items to Its Subsidiary Buzz Lightyear