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Sir i am stuck in a situation
If for example parent acquires subsidiary on 30 june(1 jan -31 dec financial year) and during the year subsidiary sold goods to parent of 10000 each month(original cost 8000). 50% remain unsold.
Then 4000 per month would have been gross profit and unrealised profit would have been (4000×6×1/2) as it’s mid year acquisition
But if we consider SOFP the whole of subsidiary inventory would have been present.so will we subtract 24000 as purp from inventory (sofp) or only 12000 ?And another question if A ( parent) acquires b( subsidiary) on 30 june .A sold goods worth 10000 to b on 28 February ( pre acquisition ). Will it be considered intra group trading or not( as it is a pre acquisition trading and not post acquisition)?
The profit is surely 2,000 per month (not 4,000).
The purple is only on the inventory that the subsidiary acquired after the date of acquisition. Although it is obviously likely to be the case that the inventory remaining will include everything bought since acquisition, the question would have to make it clear whether or not that was the case.
Inter-group trading is only any trading post acquisition.
So sir if A acquires B on 30 June…..and had already trade receivables of B before the acquisition date…will we cancel it or not( as it is pre acquisition)?
Like i asked i would like to give a clear example
Trade receivables
A -120000. B-130000
Trade payables
A-11000. B-40000
A acquired b on 30 june
A sold some goods to b on credit on 28 February ( pre acquisition) of 20000
Still no payment is done regarding this
Will we cancel current accounts in above scenarioAnd sir i am grateful to your reply ..but still i am unsure
If A acquires B on 30 june
B sold goods to A of 10000 each month ( original cost 8000) so that gross profit for b every month is 2000 .At year end 50% of goods remained unsold.
Since a acquired b mid way…only half of b’s profit will be considered for consolidation
So that PURP would be ( 2000×6×50%)
So purp of 6000 would be deducted
BUT i am not able to understand how will this situation be treated in sofp’s closing inventoryAs far as receivables/payables are concerned, the cancelling is for whatever it owing from one to the other as at the reporting date. It is irrelevant when the sales was actually made.
As fat as the purp is concerned, always the same amount is subtracted from the inventory as is adjusted for in the SOPL.
Thank you very much sir for your help ..you really are a true teacher!!!!!
Sir but if before the acquisition subsidiary sold certain amount of goods to parent and 100% remains unsold
In this case there will be zero purp in p/l( as the sale is before acquisition)
But in sofp the parent will show 100% closing inventory …then it will contain the purp ..i am little bit confused what to do in such situationIf there is inventory from before the acquisition, then there is no purp.
(However it would be quite astonishing if this were to ever be relevant in the Paper FA exam 🙂 )
Thank you so much sir…i was really afraid of it and you made it easy!!!!!
We only should keep in mind that the purp in p/l and sofp should be same!!!!
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