Ibex Co holds 30% of Oryx Co and accounts for it as an associate. During the year Ibex Co sold goods to Oryx Co for $400,000 at a gross margin of 25%. At the year end Oryx Co still held half of these goods. What AMOUNT of unrealised profit must be eliminated in Ibex Co's consolidated financial statements? (The double entry is not required.)

Correct answer: B) $15,000

Explanation

Unrealised profit in Oryx Co's inventory = $400,000 x 1/2 x 25% = $50,000. With an associate, only the investor's share is eliminated: 30% x $50,000 = $15,000. For reference, where the parent is the seller the usual FR entry is Dr cost of sales (group profit or loss) $15,000, Cr investment in associate $15,000, because the goods are not in group inventory; the amount is the same whichever entry is used.