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Hey please i need to calculate the PURP in the below question thanks
Mid year acquisition
In the post acquisition period Hillusion sold goods to Skeptik at a price of $12
million. These goods had cost Hillusion $9 million. During the year Skeptik had
sold $10 million (at cost to Skeptik) of these goods for $15 million.I am confused, I know what a PUP is, but what is a PURP??
Ok. If you are talking about the unrealised profit within the group, then it is:
3M (12-9) * 2M/12M = $500,000.
What I did above is that I firstly calculated the unrealised profit which is the selling price less the cost (3M), however, you have to exclude from this 3M any realised profit as a result of inventory being sold outside the group. Skeptic has sold 10M of this inventory (Note that the total cost of skeptic is 12M which is the selling price), so the remaining inventory that was not sold outside the group is 2M (12-10) and that’s why we multiplied by 2M/12M, to get the unrealised profit for the remaining inventory that was not sold outside the group.
I hope Mr Mike will be able to confirm my answer though, I am no tutor and I don’t like to mislead students! lol! 😛
Maha
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