Tookey Plc sold inventory items (with a cost of £75 000)to its subsidiary Milky Plc for £135 000.A third of the inventory items were sold by Milky Plc to external parties before the financial year end.Ignoring taxes,which of the following statements is correct with respect to this transaction only?

Question

Quizplus · Accepted Answer

The sale of inventory items from Tookey Plc to Milky Plc resulted in a profit of £60,000 (£135,000 - £75,000). However, since a third of these items were sold by Milky Plc to external parties, the profit from these sales (£20,000) should not be recognized in the consolidated accounts since the goods were only transferred internally between the two companies. Therefore, the consolidated profit will decrease by £40,000 (£60,000 - £20,000).

Tookey Plc Sold Inventory Items (With a Cost of £75