- This topic has 5 replies, 2 voices, and was last updated 6 years ago by
.
- Posts
Hi sir
I have a doubt .Axle is associate company and plateau is parent company .
plateau is negotiating a contract to supply goods to axle at 20% profit . how will unrealized profit on the sale be considered in consolidated Financial statements .Debit
and creditoptions : a)group inventory b) investment in associate c) share of profit of associate
can you please tell me the journal entry ?
in Bpp revision kit it just says group inventory is unaffected
Hi,
If the parent is selling to the associate then the profit on the sale of goods is included within inventory which is held in the associate. In eliminating the PURP we cannot post the entry to inventory as it will not be included within the group accounts as the associate is equity accounted.
In eliminating the PURP we have to process the entry to the investment in associate as that is the only line in the group accounts that relates to the associate.
Thanks
Hi,
If P sells to A then:
DR Group retained earnings/cost of sales
CR Investment in associateIf A sells to P then:
DR Group retained earning/share of profit of associate
CR InventoryThanks
Hi sir
But in bpp revision kit .
question no. 243 .
Jarvis owns 30% of mclintock . during the year to 31dec2014 mclincktook sold 2million of goods to jarvis of which 40% were held in inventory by jarvis at the year end . mclintock applies a mark up of 25% on all goods sold .what effect would the above transactions have on group inventory at 31dec2014 ?
Ans as per BPP kit : no effect on group inventory and entry is
Dr share of profit
cr investment in associateBut it has a effect on group inventory right ?
Hi,
This is very strange indeed as having looked at the answer and the study text too it now seems to say that whichever way the sale is made, i.e. P to A, or A to P, then the adjustment is the same regardless, which I have my doubts upon but will have to go with what it said in the BPP materials.
I’m not aware of any changes that have been made but it appears that there may have been, given what the say.
Thanks
- You must be logged in to reply to this topic.