Unrealised profit in inventory
Unrealised profit in inventory is profit on an intragroup sale included in goods still held by the group at the reporting date. First identify inventory remaining within the group, then calculate the profit included in its transfer price. Eliminate that amount from inventory and the seller's profit in consolidation. For a subsidiary seller, consider the effect on the non-controlling interest; for a parent seller, it affects the parent's share.
Worked example
A group company sells goods costing 80 to another for 100; all remain unsold, so eliminate profit of 20 and reduce consolidated inventory to 80.
Common mistake
Apply the adjustment to the seller's profit and relevant ownership interest; do not confuse it with fair-value gains on investments.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| ACCA | SBR | Direct | Official assessment-window verification pending |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Unrealised profits (PUP), Provision for unrealised profit, Unrealised profit in inventory (PUP)