Home For AAT student members AQ 2013 AAT Level 4 (Level 8 in Scotland)
Current updates regarding coronavirus (Covid-19) and the precautions AAT are taking will be continually updated on the below page.

Please check this link for the latest updates:
We hope you are all safe and well and if you need us we will be here. 💚

unrealised profit...help

ms sadatms sadat Feels At HomeRegistered Posts: 39
can anybody help me to undrestand the unrealised profit .how do we get it refere to practice assesment one workbook 1.4b .DFS


  • Steve CollingsSteve Collings Experienced Mentor Registered Posts: 997
    I don't have access to the Q but unrealised profits are essentially the profit element one company in a group (for example subsidiary) makes when it sells inventory to another company in the same group (for example to the parent company).

    At the year-end, if the parent still has goods in its inventory which it bought from the subsidiary, then this transaction (for consolidation purposes) is merely a transfer of goods from one member company to the next. Any profit on this transfer cannot be recognised because it has not been sold to third parties i.e. entities outside of the group. Therefore for consolidation purposes, this unrealised profit element must be eliminated in order to reduce the inventory back down to the lower of cost or net realisable value (per IAS 2).

    To do this you would work out the unrealised profit element and (assuming you are preparing the consolidated SFP) credit the inventory amount and debit consolidated retained earnings.

    Hope that helps.

  • ms sadatms sadat Feels At Home Registered Posts: 39
    thank you!
Sign In or Register to comment.