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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 thousandsCost of investment – 5000
Share of post-acquisition profit (8,500 – 7,400) × 25%) – 275
PURP (600 × 30% × 25%) – (45)
Total – 5230Sir, here the associate has sold the goods to the parent so the entry as per the notes is:
Dr Group Retained Earnings
Cr Group inventoryThen why has the PURP been deducted from the investment in associate figure shown in the CSFP?
Hi,
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
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