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Hi sir
i’m confused about the treatment for intragrop trading between associates and parent
According to the BPP and Kaplan study texts and also some examiners answers in F7
if Associates sells to parent ,
Reduce share of associates profit (CSCI)
Reduce inventory (CSFP)
my questions are
1. If we go through above treatment why it does’t affect the investment in associate ,as under equity method of accounting share of associates profit’s corresponding figure should be added with investment in associate ?
2. What is the reason for reducing group inventory ?I can’t answer you! My way (and I have to admit that it varies from BPP and Kaplan!) is to deduct the pup in full from the associate’s profits and then calculate the group’s share of those adjusted associate profits
The effect of treating those pups in my way is to:
Dr Retained Earnings (with the group’s share of the pup), and
Cr Investment in Associate (with that same amount)
I have great difficulty in working out how the “other” method can work
When the figure for inventory is adjusted (say we increase the draft figure for inventory by $100), the amount of the adjustment increases by $100 the inventory figure on the statement of financial position and also increases the inventory figure by the same amount in the statement of profit or loss, thus increasing the reported profits
So effectively we:
Dr Current Assets $100
Cr Cost of Sales $100But that’s not what happens with the BPP / Kaplan entry where they appear to:
Dr Inventory $100
Cr Investment in Associateand there I get lost!
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