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Sir, for downstream transaction do we have to deduct the group’s share of urp from the sopl of group (share of associates profit)?
And for the upstream transaction why are we debiting cost of sales? Thanks in advance.
Yes
and
because we are trying to reduce profit. This we do by reducing closing inventory and that increases cost of sales, and that reduces profit
OK?
I am a bit confused sir. Now for downstream transaction since the inventory now belongs to the associate, shouldn’t we debiting the associate’s cost of sales, then this decreases group share of associates profit and so should debit retained earnings of group?
And, regarding my first question above, june 2014 ques 1 did not deduct the urp from Penketh sopl (investment income: share of profit from associate). Why is this so?
That’s exactly what the course notes say “make the pup adjustment in the associate’s records and then take the group’s share of the associate’s adjusted profit after tax”
Where did they make the adjustment?
So this means that we debit cost of sales in both up/downstream transaction to decrease group’s profit during the yr in sopl? And that decreased RE will balance with the decrease of inv/investment in associate(group share of post profit) in sofp right sir?
The ques only required us to do consol sopl, ans written is they adjust urp in cost of sales. For the one line share of profit from associate, they just take group’s share of associate’s PAT.
Not too sure yet, so my statement above correct sir? But why in the past year ques urp not deducted from share of associates profit? Since downstream transaction is
Dr Cost of sales
Cr Investment in associates
Credit investment is because share of profit dropped so shouldn’t the one line share of profit in sopl also dropped by the urp amount?If you have read the course notes then you would see that, no matter whether we are buying from or selling to the associate, if you ALWAYS make the pup in the associate’s records, you arrive at the correct answer.
BPP, Kaplan and sometimes the examiner make the adjustment for a downstream (ugh expression) pup in the parent’s records. It comes to the same answer overall but has slightly different values for investment in associate and inventory (I think)
Don’t panic about it!
Thank you very much sir for helping me. 🙂 i think i’ve got some idea about it already.
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