A Limited, a holding company holds more than 50% shares in B Limited, A's subsidiary.

Unrealised Profit Portion of the unsold items remaining from US$15000/ need be lessened from the Revenue  in the consildated figures in the Financial statements.

MUTUAL OWING / INTER COMPANY TRANSACTIONS :

 The holding company and the subsidiary company may have

number of inter company transactions in any one or more of the

following matters.

1. Loan advanced by the holding company to the subsidiary

company or vice versa.

2. Bill of Exchange drawn by holding company on subsidiary

company or vice versa.

3. Sale or purchase of goods on credit by holding company form

subsidiary company or vice versa.

4. Debentures issued by one company may be held by the other.

As a result of these inter company transactions, certain

accounts appear in the balance sheet of the holding company as

well as the subsidiary company. In the consolidated balance sheet

all these common accounts should be eliminated.

All the above inter company transactions have to be eliminated

while preparing the consolidated balance sheet. These can be done

by deducting inter company transactions from the respective items

on both sides of balance sheet.

UNREALIZED PROFIT:

 The problem of unrealized profit arises in those cases where

the companies of the same group have sold goods to each other at

the profits and goods still remain unsold at the end of the year

company to whom the goods are sold.

 While preparing the consolidated balance sheet, unrealized

profit has to be eliminated from the consolidated balance sheet in

the following manner.

1. Unrealised profits should be deducted from the current

revenue profits of the holding company.

2. The same should be deducted from the stock of the

company consolidated balance sheet. Minority shareholders

will not be affected in any way due to unrealized profits.

The balances of mutual owing of both the copmanies are the same.Only  think about the unrelized profit on sale. if these sales are also made by the purchasing company to outsiders then should be eleminate the entire balances other wise adjustment made on unsold goods accordingly.

the rest rules of consolidation are ase

There are five important rules an accountant must follow when consolidating.

First, the accounting must eliminate all of the subsidiary's shareholders equity accounts, such as common stock and retained earnings.

Second, eliminate the "Investment in Subsidiary" account the company recorded at the time of acquisition. Third, the accountant creates a "Non-Controlling Interest" account if the company owns less than100 percent of the subsidiary.

Fourth, readjust all the subsidiary's balance sheet accounts to the current fair market value of the accounts.

Fifth, recognize a goodwill for the change in the assets value. These five actions are done at the same time in the consolidation journal entry.