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may be it is like an f7 question but it confused me. here a company owns 30% of a joint venture accounted for using the equity method. the venture has profit after tax of 500,000. but the venture sold goods to the parent company for 60,000 at 50 %markup. so there is pup 60000 x50/150 x 30% = 6000. in the answer the parent takes its share 30% of the associate pat (500,000 x 30%) = 150000 then deducts the 6000 pup = 144000. but as far as i remember we have to adjust the venture’s pat before taking our share. ie 500000 pat – 6000 pup = 494000 then we take our share 30% of the 494000 = 148200
Look at it this way – calculate the pup ( not just our share ) as being 20,000.
Deduct that from the 500,000 = 480,000
Now take our share of that adjusted pat = 30% x 480,000 = 144,000
You have already grossed down the pup for our share.
You were correct in deducting our share of the pup, but you can only do that against our share of the pat….
….or, you can deduct the full pup from the pat, and then take our share
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