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Hi Mike,
Please explain why pups on the below note is not adjusted as per June 2015 consolidation question.
Merchant sold inventory to Nathan for 12m at fair value. Merchant made a loss on the transaction of 2m and Nathan still holds 8m inventory at the year end.
Hi,
The transaction results in a loss rather than a profit. As the goods were sold at fair value then that loss is treated as being fully realised even though it is a transaction between P and S, and no adjustment is made. Think of it as being prudent.
This was the first time something like this appeared and I doubt that many people treated it correctly in the exam. Just have an awareness of it in case it were to make a reappearance.
Thanks
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