Lilo Ltd sells inventory items to its subsidiary Stitch Ltd.If during the financial year 2013,the unrealised profits in ending inventory in Stitch Ltd exceeds that of its unrealised profits in beginning inventory,which of the following statements is correct with respect to Lilo Ltd's consolidated financial statements after considering these transactions only?
A) Consolidated profit will decrease.
B) Consolidated deferred tax liability will increase.
C) Consolidated ending inventory will decrease.
D) Consolidated sales will be unaffected.

Question

Quizplus · Accepted Answer

The increase in unrealised profits in ending inventory compared to beginning inventory means that more profit is being deferred, which reduces the consolidated profit for the year.

Lilo Ltd Sells Inventory Items to Its Subsidiary Stitch Ltd