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In the following mini exercise question, the inventory and retained earnings of A(Associate) was reduced in the answer key, while H is the selling company:
H sold $80,000 goods to A at a gross profit of 30%
A had sold none of these goods by the end of the yearCan you please explain me why, sir?
This goes back to the chapter on accounting for associates
My approach to dealing with pups arising from transactions with associates is to adjust for those pups in full ALWAYS in the records of the associate whether the sale is made by the parent or by the associate
The method automatically removes the parent’s share of the pup by reducing the associate’s profits and the parent then accounts for its share of those reduced profits
OK?
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