The effect of an intragroup sale of inventory at a profit,where the inventory has been sold to external parties prior to the end of the reporting period,is that both profit and the inventory asset are overstated.

Question

Quizplus · Accepted Answer

An intragroup sale of inventory means that the sale is between companies within the same group. In such a case, the profit is eliminated in consolidation and is not recognized in the group's consolidated financial statements, thus, it doesn't lead to overstating the profit. The inventory asset can be overstated if it's not eliminated from the group's consolidated financial statements, but this would depend on the circumstances of the particular transaction. Therefore, the statement in the question is only partially correct and the correct answer is B (False).

The Effect of an Intragroup Sale of Inventory at a Profit,where