Case: Jaldhara Ltd (the parent) sells goods to its 80% subsidiary at cost plus 25%. At the year end the subsidiary holds such goods invoiced at ₹2,50,000. Under AS 21, the unrealised profit to be eliminated from consolidated inventory is:

Correct answer: D) ₹50,000

Explanation

Profit included in the inventory = 2,50,000 x 25/125 = ₹50,000. AS 21 requires unrealised profits resulting from intragroup transactions included in assets such as inventory to be eliminated in full, so the entire 50,000 is eliminated, not just the parent's 80% share (40,000). Taking 25% of the invoice value (62,500) applies the mark-up on the wrong base.