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Why is it important to remove unrealized profit arising from transactions between companies in a group?
Basically,when preparing consolidated financial statements, you are attempting to record the performance and condition of the group as a whole since in real terms it is essentially a single entity.If you did not remove unrealised profit from accounts this would go against this concept.Essentially, artificial profits would be made and financial statement of position would be artificially boosted.Basically it is analogous to paying yourself to do your own gardening.In no sense have you financially increased your income or wealth by paying yourself.
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