Aladdin Ltd sold inventory items (with a cost of $100 000)to its subsidiary Genie Ltd for $120 000.Half of the inventory items were sold by Genie Ltd 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

Consolidated profit will decrease by $10,000 because the intra-group sale's markup ($20,000) is only realized on the half of the inventory that remains unsold by Genie Ltd. The sold portion's profit is eliminated on consolidation, leaving only the unrealized profit from the unsold portion to affect consolidated profit.

Aladdin Ltd Sold Inventory Items (With a Cost of $100