Where an Investor Sells Inventories to an Associate in a Prior

question 24

Multiple Choice

Where an investor sells inventories to an associate in a prior year and the inventories are sold by the associate during the current year the investment in associate account is:

• A) unaffected.
• B) increased by the full amount of the realised profit.
• C) increased by the investor's share of the realised profit.
• D) decreased by the investor's share of the realised profit.

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Definitions:

Ratification

The act of officially approving or confirming an action or decision, usually after the fact, which might not have been initially authoritative or agreed upon.

Apparent Authority

Apparent authority refers to a situation where a third party is led to believe that an agent has the right to act on behalf of a principal, regardless of whether this is true.

Actual Authority

The explicit power given to an agent by a principal, enabling the agent to perform acts on behalf of the principal.

Taxable Income

The portion of an individual's or entity's income used to determine how much tax is owed to the government in a given tax year.