Pal Co. owns 70% of the outstanding common shares of Sadd Ltd. Sadd sold an asset to Pal at a loss. There is no evidence of impairment in the value of the asset sold to Pal. Which of the following statements about the loss is true?
A)The loss should not be eliminated because this is an upstream sale.
B)The loss should not be eliminated because there is no impairment in the value of the asset.
C)The loss should not be eliminated because Pal does not own 100% of Sadd.
D)The loss should be eliminated.

Question

Quizplus · Accepted Answer

Under IFRS, when an upstream sale occurs between a parent and its subsidiary, any unrealized gains or losses on the assets sold should be eliminated to the extent of the parent's ownership. In this case, Pal owns 70% of Sadd, so 70% of the loss should be eliminated. Since there is no evidence of impairment, the loss should not be recognized by Sadd, resulting in the full elimination of the loss. Therefore, the loss should be eliminated.

Pal Co Owns 70% of the Outstanding Common Shares of Sadd