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?
This is BPP’s answer:
All calculations are in thousands
Cost of investment – 5000
Share of post-acquisition profit (8,500 – 7,400) × 25%) – 275
PURP (600 × 30% × 25%) – (45)
Total – 5230
Sir, here the associate has sold the goods to the parent so the entry as per the notes is:
Dr Group Retained Earnings
Cr Group inventory
Then why has the PURP been deducted from the investment in associate figure shown in the CSFP?
Ask the Tutor ACCA FR
Associate accounting
3y ago#1Hi,
The adjustment in profit or loss is being made to the specific line in the profit or loss account. So when preparing the group statement of profit or loss we need to make an adjustment somewhere and as it is the associate that has made the profit we adjust the line related to the associates profit. Once this adjustment is made then it would feed through to the group retained earnings on the group statement of financial position.
Thanks
Yes sir i understand that but why does this adjustment reflect under the investment in associate figure as well sir?
Thanks
3y ago#3If the associate sold the goods then the inventory is held in the parent's books and the adjustment should be to inventory. I'm not sure why it is in the investment in associate unless it is an error.
Thanks
Sign into reply to this topic.