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Hi Mike,
Can you please comment on Q13 BETH from the latest KAPLAN revision kit?
I’m not sure that I understand provision for unrealized profit of 3m$.Is it so that in case of associate, there are different rules than for subsidiary?
The provision is calculated according to the shareholding (not for the full amount of unrealized profit) and it is eliminated on consolidation from both W3 and W5A (not from retained earnings and inventory of the selling entity)?I hope my question makes sense 🙂
Sanita
Hi Sanita
Yes, the rules are different (I’ve told you this at F7!)
For an associate pup there are essentially two ways of dealing with the issue.
I taught you “my” way and that’s different from the Kaplan / BPP way but both arrive at effectively the same solution.
Whichever way you tackle it it’s necessary to eliminate the GROUP’S SHARE OF THE PUP where that pup has arisen from a transaction involving an associate
The Kaplan /BPP way calculates the group share and reduces the parent’s retained earnings and the figure for investment in associate
My way is to deduct the FULL amount of the pup from the associate’s retained earnings. Then, when we take our share of the associate post-acquisition retained earnings, we automatically will have reduced the consolidated retained earnings and the investment in associate
As I said at the start of this post, the two ways have the same affect!
Ok?
You’re welcome …. but it’s nearly midnight and P3 tomorrow! Time to get some well earned sleep!
Mike, I almost got heart attach from your comment.
Luckily, P3 I have passed already.
And P2 is only after tomorrow, hopefully 🙂
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