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Good afternoon!
Please clarify the following:
In the CSFP working “Investment in Associate” do we include PURP?
regards
Hi,
If there is trading between the parent and associate then we remove the parent’s share of any PURP on goods still held at the reporting date. The adjustment depends on the direction of the sale (P to A or A to P)
Try and have a think about the entries and let me know how you get on. I can then let you know if you’re correct or not.
Thanks
Hello Sir,
My questions are:
1) How do we account for PURP which shows that the associate is the seller. Does it come under equity accounting (parent’s share)? Would the entries be like this:
DR (what do we debit here?)
CR Investment in associate2) How do we account for this one:
The inventories of Simone and Alberta at 30/09/20X8 included components purchased from Pierre during the year at a cost of $20m to Simone and $16m to Alberta. Pierre supplied these components at cost plus a mark up of one-third.Do we do like this?: DR group retained earnings (PURP) $5m (for Simone)
CR Inventories $5mAnd for associate:
DR group retained earnings $4m
CR investment in associate $4m(PIERRE HAD ACQUIRED 80% OF SIMONE AND 25% OF ALBERTA)
Please help.
Thank you so much.Hi,
1. If the associate is the seller then we DR Group retained earnings CR Inventory (as P holds the inventory).
2. On the sale to Simone it is DR P’s retained earnings (W5) (seller) $5m CR Inventory $5m.
On the sale to Alberta it is DR Group retained earnings $1m (don’t forget to take our share of the PUP) CR Investment in associate (as A holds the inventory) $1m
Thanks
Ok.
So sir in (1) Do we take the whole amount,right and not the proportion of parent’s share?In (2) why do we have to take parent’s share for associate purp but not for subsidiary?
(3)just to confirm that if subsidiary were selling goods to parent,then would the purp be accounted this way:
Dr net assets (whole amount)
Cr inventory (whole amount)And if parent sold goods to subsidiary, purp would be:
Dr group retained earnings (whole amount)
Cr inventory (whole amount)Thank you.
Hi,
It is important that you distinguish between consolidating a subsidiary where we have control and equity accounting for an associate.
Equity accounting always involves taking our share as that is then reflecting the level of influence that we have over the asssociate. On consolidation we have control and so any adjustment is done for the full amount as that is the amount that we control, we do not take our share of it as is done in equity accounting.
This should then deal with your first two points.
Your final point is correct but just be careful in that when S is the seller we are debiting the retained earnings at the reporting date, which is within the net assets working.
Thanks
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