302 Laurel Co

Dear tutors,

I have a problem with this problem regarding this note:

Laurel Co acquired 80% of the ordinary share capital of Hardy Co for $160million and 40% of the ordinary share capital of Comic Co for $70million on 1 January 20X7 when the retained earnings balances were $64million in Hardy Co and $24million in Comic Co. Laurel Co, Comic Co and Hardy Co are public limited companies.
On 30 November 20X9 Laurel Co sold some goods to Hardy Co for cash for $32million. These goods had
originally cost $22million and none had been sold by the year end. On the same date Laurel Co also sold goods to Comic Co for cash for $22million. These goods originally cost $10million and Comic Co had sold half by the year end.

The BPP book solves the intra trading between Laurel and Comic as follows:

Laurel Co’s sales to Comic Co (associate) ($22m – $10m) × ½ × 40% share = $2.4m.
DR Retained earnings (Laurel Co) $2.4m
CR Investment in associate $2.4m

I do not think this makes sense because in this case, Parent makes a sale to the Associate so the profit on the sale should be derecognized in full value in RE of Laurel Co.

Could you please help me to explain this?

Thanks a lot.