Economics · Corporate Accounting
Global Infrastructure Ltd is preparing its consolidated financial statements under a regulatory framework. During the year, its subsidiary Enerco sold heavy machinery to another subsidiary Buildco for 2,00,00,000 rupees, which included an upstream profit of 40,00,000 rupees. Buildco used this machinery for six months and charged depreciation at 10% per annum. What represents the most critical adjustment needed during consolidation regarding this inter-company machinery sale?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1No adjustment is needed because the sale was between two different subsidiaries and not directly involving the parent.
- 2The depreciation of 20,00,000 must be added back to the consolidated profit because it is an inter-company expense.
- 3The unrealized profit of 40,00,000 must be eliminated, and the consolidated depreciation must be reduced by 2,00,000 rupees.✓
- 4The entire sale price of 2,00,00,000 must be eliminated from the group's revenue.
Correct answer
The unrealized profit of 40,00,000 must be eliminated, and the consolidated depreciation must be reduced by 2,00,000 rupees.
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