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Accounting for Associates

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Accounting for Associates

  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by P2-D2.
Viewing 2 posts - 1 through 2 (of 2 total)
  • Author
    Posts
  • April 22, 2021 at 6:09 pm #618542
    Anonymous
    Inactive
    • Topics: 2
    • Replies: 0
    • ☆

    Hi SIr!
    Ulysses owns 25% of Grant, which it purchased on 1 May 20X8 for $5 million. At that date Grant had
    retained earnings of $7.4 million. At the year end date of 31 October 20X8 Grant had retained earnings of
    $8.5 million after paying out a dividend of $1 million. On 30 September 20X8 Ulysses sold $600,000 of
    goods to Grant, on which it made 30% profit. Grant had resold none of these goods by 31 October.
    At what amount will Ulysses record its investment in Grant in its consolidated statement of financial position at
    31 October 20X8?

    Cost of investment – 5,000
    Share of post-acquisition profit (8,500 – 7,400) × 25%) – 275
    PURP (600 × 30% × 25%) – (45)
    5,230

    Why in order to find PURP we multiplied to 30% (why not 70%), if it’s provision for “unreleased” profit

    April 24, 2021 at 1:20 pm #618722
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    We eliminate our share of the profit as that is the amount of influence that we have over the associate. As we own 30% then we will eliminate 30% of the profit.

    Thanks

  • Author
    Posts
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