Asked by Shannen Relova on Jun 18, 2024
Verified
A parent company owns 80% of the issued capital of its subsidiary.On consolidation,a sale of inventories between parent and subsidiary will be eliminated as follows:
A) 20% of sale amount.
B) 80% of sale amount.
C) 100% of sale amount.
D) not eliminated.
Issued Capital
The total value of a company's shares that have been issued to shareholders.
Elimination
The process of removing internal transactions or balances when preparing consolidated financial statements to avoid double counting.
- Discover and detail the impact of inner-group transactions on the aggregation of financial statements.
Verified Answer
AW
Abigail WaryankaJun 19, 2024
Final Answer :
C
Explanation :
When a parent company owns 80% of the issued capital of its subsidiary, it means that the parent company has significant control over the subsidiary. Therefore, any sale of inventories between the parent and the subsidiary is considered an internal transaction and should be eliminated in consolidation. Since the parent company owns 80% of the subsidiary, it means that 100% of the sale amount is eliminated, not just a portion of it. Therefore, the correct answer is C – 100% of sale amount.
Learning Objectives
- Discover and detail the impact of inner-group transactions on the aggregation of financial statements.
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