Where an investor sells inventories to an associate and the inventories are still on hand at the end of the year the investor's share of the associate's profits is:

A) decreased by the investor's share of the unrealised profit.
B) increased by the investor's share of the unrealised profit.
C) not affected as the unrealised profit is in the books of the investor, not the associate.
D) not affected as unrealised profits are only considered to arise in a parent-subsidiary relationship.

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Rachelle VanDoren · Accepted Answer

Final Answer : A, Explanation :  When inventories are sold to an associate and are still on hand at the end of the year, the investor's share of the associate's profits is decreased by the investor's share of the unrealized profit. This is because the profit on the unsold inventory is unrealized until it is sold to an external party. Therefore, the investor's share of the profit on the unsold inventory is considered to be unrealized and should be adjusted for in the investor's share of the associate's profits.

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