Quartermain Limited has the following investments:
1)Christian Limited-a 100 per cent owned subsidiary
2)Hudson Limited-a 75 per cent owned subsidiary
3)Lane Limited-a 40 per cent owned associate
4)Daicos Limited- a 25 per cent owned associate
Lane Limited sells inventory,which cost Lane Limited $40 000 to acquire,to Christian Limited,at a mark up of 50 per cent.25 per cent of the inventory remains on hand at the end of the period.What is the amount to be eliminated in the consolidated accounts of Quartermain Group Limited?

Question

Quizplus · Accepted Answer

Quartermain Group Limited needs to eliminate the unrealized profit on inventory sold by Lane Limited to Christian Limited.

The cost of the inventory sold by Lane Limited to Christian Limited was $40,000. With a markup of 50%, the selling price would have been $60,000.

Therefore, the unrealized profit on the sale of inventory from Lane Limited to Christian Limited was $20,000 (selling price - cost). Since Quartermain Group Limited only owns 40% of Lane Limited, the amount to be eliminated in the consolidated accounts is calculated as follows:

$20,000 x 40% = $8,000

However, 25% of the inventory remains unsold at the end of the period, so Quartermain Group Limited only needs to eliminate 25% of the unrealized profit:

$8,000 x 25% = $2,000

Therefore, the amount to be eliminated in the consolidated accounts of Quartermain Group Limited is $2,000, which is option C.

Quartermain Limited Has the Following Investments