Associate sell to Parent Co.

Put the whole of the pup through the associate. Then, in working W3, take our share of the associate's adjusted profits and, in working W5, the investment in associate line "our share of associate post acquisition retained" is also affected. In debits and credits, Dr retained earnings with our share of the pup, Credit investment in associate Ok?

Hi mike, should the inventory be reduced by the amount of profit though?

It's an irrelevance! The Associate's profit after tax will be reduced by any pup. Working W5a, Investment in Associate, is calculated as: Cost of investment + Share of post acq retained (as adjusted for the pup) - Any impairments Working W5b, Interest in Associate's results for the year is calculated as: Our percentage share of Associate's profit after tax (as adjusted for the pup!) Ok?

Is it the same treatment regardless of whether P sells to A or A sells to P? I can't see how in the case where A sells to P then why isn't P's inventory overstated with profit element?

There's a strange thing! When parent sells to SUBSIDIARY, it's the subsidiary's inventory that is overvalued but the pup adjustment goes through the parent's retained earnings, not the subsidiary's. We really are not interested in whose inventory is overvalued because (a + b - c) is the same as (a - c + b) Technically when parent sells to associate, the adjustment should be to remove just the group's share of the pup from the parent retained earnings But the result is the same (ie the sofp still balances) when you make the full pup adjustment through the associate And that's the easier way. There are differences in the figures for retained earnings and for investment in associate but, as I said, the sofp still balances Ok?

Thank you mike. I think my problem is getting tied down in detail rather than just learning the rules and applying them. Thanks

Yes, ok, but it's easier to learn the rules if you can understand what's happening :-)