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Hi mike
Can u pls explain me the logic of removing the unrealized profit from the group retained earnings and crediting the investment in associate on consolidation while trading with the associate ! Also if the p while selling made an unrealized profit of 10, shouldn’t that entire amount be added to the cost of sales , why is it that only the group percentage is taken?
Thanks!Answering the second question first, are you forgetting that an associate is NOT a group company so, really, you should be asking why we are removing ANY of the unrealised profits!
It was the Interpretations Committee that decided that it was appropriate to remove the group’s share of any unrealised profits that arose from trading with the associate and if the Interpretations Committee says that’s what we should do, then that’s what we shall do!
In the process of removing the group’s share of any pup arising from trading with an associate, there are two (undoubtedly more than two) distinct ways of tackling it
We can calculate the appropriate group’s share of the pup and deduct that amount from the consolidated retained earnings (parent company’s column) or …
… we can deduct the full amount of the pup from the associate’s results and then calculate the group’s share of those adjusted results
The effect is to eliminate just the group’s share of the pup, both ways
OK?
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