The effect of an intragroup sale of inventory at a profit where the inventory is still on hand at the end of the reporting period is that both profit and the inventory asset are overstated.

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An intragroup sale of inventory at a profit means that one entity within a group of companies is selling inventory to another entity within the same group at a higher price than its cost. This results in an inflated profit for the group as a whole, as well as an overstatement of the value of inventory remaining on hand at the end of the reporting period, since it has been recorded at the inflated sale price.

The Effect of an Intragroup Sale of Inventory at a Profit