Jessica ltd owns all of the shares of Amelie ltd On 1 January 2019 Jessica ltd acquired $10 000 worth of inventories for cash from Amelie ltd The inventories had previously cost Amelie ltd $7 000 By t

The initial transaction between Jessica ltd and Amelie ltd is an intercompany transaction. As such, it does not affect the consolidated financial statements. However, the subsequent sale of half of the transferred inventories to an external party does have an impact on the consolidated financial statements.

The sale of $5 000 worth of inventories results in a profit of $2 500 ($5 000 - $2 500). This profit is eliminated in the consolidated financial statements as it represents a profit made between two companies under common control.

The consolidated financial statements would show the following:

Consolidated income statement:

• Revenue: $5 000
• Cost of sales: $2 500
• Gross profit: $2 500

Consolidated statement of financial position:

• Inventories: $5 000 (reflecting the remaining inventories held by Jessica ltd)
• Cash: $10 000 (reflecting the cash received from the sale of inventories