Please help with one small question in task Andash.
I don’t understand one issue in calculation of investment in associate.
Why do we eliminate inter-company profit (8*25%) – it is said in question that “Joma had sold inventory to Andash -it means that associate sells to parent and transaction shpoul look like : Dr RE Cr Inventory. If it was that parent sells to associate then transaction is Dr RE Cr Invenstment in associate. Am I right? Why then in this task we should eliminate inter-company profit – it should not influent on investment in associate?
Is it Cashflow Statement you are talking about? if so then as far as i know there shouldn’t be anything related to unrealized profits between associate and parent as u all u need to do is to either calculate dividend paid by associate to parent or in the other case cash injected to support associate or amount of cash paid to acquire an associate depending on situation on hand ! Therefore unrealized profit between associate and parent has nothing to do with the cash flow in my opinion.
Agreed, if it’s a cash flow question, the matter of pups arising from transactions with an associate are irrelevant. Only dividends received ( or money invested in associate during the year ) will feature in the cash flow statement
Where can i find the answer to this question??
In this question, the investment is stated at cost in SOFP, meaning that you must make adjustments to SOCI and SOFP according to equity method.
And IAS 28 says this: “Profits and losses resulting from ‘upstream’ and ‘downstream’ transactions between an investor…and an associate are recognized in the investor’s financial statements…to the extent of unrelated investors’ interests in the associate…The investor’s share in the associate’s profits and losses resulting from these transactions is eliminated.”
So, whether the transaction is upstream or downstream is irrelevant; and 1= 3 (25%*(32-20)) – 2 (25%*(16-) is recognised in the SOCI and SOFP.
DR investment in associate(SOPF) 1 CR profit on accociate(SOCI) 1
In addition, the profit on associate is should be deducted to profit before tax as it is a non-cash item.
hope this can help
I’m taking P2 paper this december.. I’m confused with this Q also…
what if there is downstream transaction? do we still deducted from profit on associate?
You must be logged in to reply to this topic.