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Unrealised profits – Example 3 – ACCA Financial Reporting (FR)

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  1. thank you for the excellent lecture. I understand that we have eliminate the intra group sales: not revenue incurred and no cost of sales incurred, that’s why we need to remove the sales and add back the cost of sale. but I still do not understand why the professor did not deduct the revenue from the subsidiary’s column and add the cost of sales back to the parent’s column?

  2. Hi Sir, first of all, thanks a lot for the lectures and the deliveries, just master piece all through. I have just one concern, I might be wrong but why do we have to adjust the Pup at the level of Nick’s SPL? Does the NCI need to suffer the PUP of $500 as well? The transaction is between Gary and Nick and I would have thought the adjustment be made at the level of Gary’s SPL or the Gary’s Group SPL.
    Please could you kindly shade more light on your proceeding?

    Thank you.

  3. I understand that intra group sales must be eliminated from the group SPL. But how is it we deduct the same amount from the ‘revenue’ figure and the ‘C.O.S’ figure?

    Suppose Company S bought goods at cost $4000 and sold them to Company P at $5000. Company S records C.O.S of $4000 and Sales of $5000.
    How is it then that when it comes to preparing the Group SPL, we deduct $5000 from Sales and from the C.O.S?

    There’s only $4000 in the C.O.S. So how can we deduct $5000?

      • I beg to differ! I believe that, wrt your example, we are deducting $5,000 from the AGGREGATE Cost of Sales and $5,000 from the AGGREGATE Revenue.

        This is NOT an adjustment that is to be made in individual company records – it’s an adjustment on consolidation

    • I think the example in the lecture preceding this highlights why they are the same amount. S bought goods from outside the group for $8m. It then sold those goods to P for $10m. For now lets assume P sold all $10m for $12m.
      The SPLs would look like this, without adjustment

      P S Group
      Revenue 12 10 22
      Costs (10) (8) (18)
      2 2 4

      This is wrong, the group as a whole paid 8, and sold for 12. the group profit is right, the Group Rev and costs are not. they have double counted the transaction of 10.

      So actually the GSPL should look like
      P S Adj Group
      Revenue 12 10 (10) 12
      Costs (10) (8) 10 (8)
      2 2 nil 4

      • Formatting went weird, heres the tables again
        incorrect GSPL
        P S Group
        Revenue 12 10 22
        Costs (10) (8) (18)
        2 2 4

        Correct SPL
        P S Adj Group
        Revenue 12 10 (10) 12
        Costs (10) (8) 10 (8)
        2 2 nil 4

      • Ill try once more. the comment box doesnt like tabs and spaces.
        incorrect GSPL
        Narrative P …S …Group
        Revenue 12 ..10 ..22
        Costs …..(10) (8) (18)
        ……………2 ….2 ….4

        Correct GSPL
        Narrative P …S ….Adj Group
        Revenue 12 .10 ..(10) 12
        Costs ….(10) (8) ..10 ..(8)
        …………..2 …..2 ….nil ..4

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