Where an investor sells inventory to an associate and the inventory is still on hand at the end of the year the investor's share of the associate's profits is:

Question

Quizplus · Accepted Answer

When an investor sells inventory to an associate and the inventory is still on hand at the end of the year, the investor's share of the associate's profits is decreased by the investor's share of the unrealised profit. This is because the investor has not actually realized the profit on the sale until the associate sells the inventory to a third party, and therefore should not recognize the profit until that point. As a result, the investor's share of the associate's profits is reduced by the amount of the unrealized profit.

Where an Investor Sells Inventory to an Associate and the Inventory