Case: At the date of amalgamation, the inventory of Yash Ltd (transferee) includes goods costing it ₹1,20,000 that were purchased from Zubin Ltd (transferor), which had invoiced them at cost plus 20%. The unrealised profit to be eliminated from inventory is:

Correct answer: A) ₹20,000

Explanation

Since the goods remain within the combined entity, the profit loaded by the transferor is unrealised. Unrealised profit = 1,20,000 x 20/120 = ₹20,000. It is eliminated by crediting inventory and debiting the appropriate reserve (or goodwill/capital reserve). Applying 20% to the invoice value (24,000) uses the wrong base.