INTER-COMPANY UNREALISED PROFITS INCLUDED IN UNSOLD GOODS

If goods are sold by one company to the other (i.e., by the holding company to its subsidiary or vice-versa) at a profit and a part of it remains unsold at the end of the year, the unrealised profit and such goods remaining unsold must be provided for. But it is important to note here that the minority shareholders will not be affected in any way. Such unrealised profit has to be eliminated from the consolidated balance sheet in the following manner:

(i) The unrealised profits should be deducted from the current revenue profits of the company which sold the goods.

(ii) Again, the same should be deducted from the value of stock-in-trade of the company concerned.