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Dear Sir,
In case there is an inter-group sale of goods at loss and the goods remain in inventory at the end of the year, what should be the treatment? understand that no PuP adjustment should be made? Please let me know your thoughts.Thanks
PS: Apologies for re posting the question as posted it in wrong forum earlier.
It really depends WHY the sale was made at a loss. If it’s because the arms-length sale value of the goods had fallen to the level of the sale within the group, then no adjustment is necessary because the group inventory value has, by this sale, been reduced to the lower of cost and net realizable value.
If it’s a way of diverting profits from the seller to the buyer, then the adjustment should be made to increase combined closing inventory, decrease combined cost of sales and therefore increase retained earnings in the seller
Ok?
Thanks Sir.
In case the question is silent, should we assume the former, as Transfer Pricing Regulations (both Domestic & International) would prohibit diversion of profits in real world?
Regards,
Avneesh
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