[usamadurvesh]

Hello sir,

Question from Kaplan F2 book:

P owns 40% of the equity shares of A (Associate).

P has sold 200,000$ of goods to A at a mark up on cost of 25%. At reporting date 60% of these goods were still in the inventory of A.

Goods in inventory: 60% of 200,000$ = 120,000
Profit in inventory: 120,000 / 125 * 25 = 24,000
PUP: 40% of 24,000 = 9,600%

Sir my question to you is why are we applying the holding percentage (40%) on the profit in inventory of A (24,000) when all the goods were sold by P to A. I mean why are we NOT classifying the entire 24,000 value as PUP but just 9,600 when this entire inventory of 200,000 was sold by P to A?

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