What is the first step in the calculation of unrealised profits from inter-company sales?

The first step in calculating unrealised profits from inter-company sales is to calculate the total profit on the inter-company sale. This step is essential because unrealised profits arise from goods that have been sold but not yet consumed or sold to an external party. By determining the total profit from the sale, the company can subsequently identify how much of that profit is unrealised, as it represents profits that are still within the group and have not been realized in the financial statements.

To calculate the total profit on the inter-company sale, you would typically need to know both the selling price and the cost of the goods sold. Once you establish this profit figure, you can then proceed to figure out what portion remains unrealised based on how much of the stock is still held by the purchasing company at the end of the accounting period.

The other steps, such as assessing the fair value of goods or determining the carrying amount of sold goods, would come later in the process after the profit has been calculated. Deducting operating expenses is also not relevant at this stage when specifically focusing on the unrealised profit calculation, as it does not pertain directly to the inter-company transaction profits.