Tookey Ltd sold inventory items (with a cost of $75 000)to its subsidiary Milky Ltd for $135 000.A third of the inventory items were sold by Milky 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 $40 000.The profit on the sale of inventory from Tookey Ltd to Milky Ltd is $60 000 ($135 000 - $75 000). However, since a third of the inventory was sold by Milky Ltd to external parties, only two-thirds of this profit will be eliminated in consolidation, resulting in a decrease in consolidated profit of $40 000 ($60 000 x 2/3).

Tookey Ltd Sold Inventory Items (With a Cost of $75