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Hi. I am confused with the unrealised profit with an associate when preparing the consolidated statement of profit and loss. I’m giving you an example:
A company acquires 30% of another company and sells good at a 25% mark up. All of the inventory was still in at the YE. So to calculate the consolidated cost of sales we add any unrealised profit for the subsidiary but do we also add the unrealised profit of the associate multiplied by 30%?
I have an exercise where it calculates the unrealised profit of the associate, multiplies by 30% and adds it to cost of sales but a past exam in ACCA’s website doesn’t and only adds the subsidiary’s unrealised profit to cost of sales.
Many thanks
Hi,
For the associate PURP we DR Cost of Sales CR Associate, regardless of the direction of the sale. The amount we adjust for is the group share of the PURP.
In the question you mention above there might be no adjustment as the inventory may already have been sold outside of the group. The profit has therefore been realised and no adjustment required.
Thanks
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