You are confused..
Let me explain again..the effects of each and every transactions between inter company must be eliminated at the time of consolidation process,which is an adjustment process only for preparation of account, untill and unless the effects has been realized i.e a subsidiary sell inventory to parent company and only those amount of profit would be added in retained earning which have been earned by parent company by selling such inventory..any amount of inventory which is remain as stock in accounts of parent company would be shown *** off percentage of profit charged by subsidiary at time of sales..in Consolidated profit and loss account, inter company sales and purchase shall be eliminated by whole actual amount..
if both parent and subsidiary enter into transactions with outsider, then the normal procedures of consolidation shall apply
