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Hello tutor,
I would like to ask that if parent sold goods to associate, how I adjust in statement of profit or loss and other comprehensive income?
And how about if associate sold goods to parent as well?In the line above “Profit before tax” – so the line that reads “Share of Associate profits” – include the group’s share of the associate’s adjusted, time-apportioned profit after tax.
That word “adjusted” refers (amongst other things) to the pup adjustment
If your question is about the possibility of cancelling the sale and purchase, then “NO” don’t cancel.
The associate is NOT a group company and it would be totally inappropriate (that’s a gentle way of saying “wrong”) to cancel sales against cost of sales.
But it IS appropriate to eliminate the group’s share of any unrealised profits which I how I started this reply
Better?
Thank you for your replied!
So you means even in the share of associate profit also no need to do any adjustment?
Example:
During the year Associate(30%) sold goods to parent for $1.8m. These goods were sold at a mark-up on cost of 20%. At year end, all of these goods in parent’s inventories.
I just adjust the inventories(-$90,000) and retained earnings(-$90,000) for financial position, right? (Unrealised profit $90,000)
To arrive P&L, no adjustment? Even-thought Share of associate profit also no need adjust?In working W3 column for Associate, you need to show 90,000 as a deduction in arriving at associate’s post acquisition retained earnings
Then take 30% of that adjusted retained earnings figure and include it within the parent’s column in working W3
In statement of income, show the group’s share of the associate’s this year’s adjusted, time-apportioned profit after tax (the adjustment is (amongst other possible adjustments) for the recording of the 90,000 pup)
OK? If not, post again
Okay, I think I got it!
You means if the share of associate profit is(say) $100, 000. So I show at the profit or lass account with this figure $10,000(100,000-90,000)?No! If the associate’s profit before adjustment is $100,000 and now we have a $90,000 pup adjustment, that reduces the associate profit before tax by $90,000 and also its profit after tax.
Now take the group’s share of that adjusted profit after tax figure – so 30% x $10,000 = $3,000 – and with that figure, put it in column 1 (the parent company column) in working W3 Consolidated Retained Earnings
All clear now?
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