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Hi Sir
Slight confusion over this question.
The P group (comprising P and it’s subsidiaries) acquired 30% of the equity share capital of A on 1 October 20X6, enabling P to exercise significant influence over the operating and financial policies of A.
A made a profit for the year ended 30 June 20X7 of $600,000. Profits are deemed to accrue evenly over the year.
Between 1 October 20X6 and the reporting date, A sold goods to P for $600,000 at a margin of 20%. P still held one quarter of these goods in inventory at 30 June 20X7.
At 30 June 20X7, an impairment review was carried out and it was determined that the investment in A was impaired by $20,000.
Calculate the amount that would appear in the consolidated statement of profit or loss of the P group for the year ended 30 June 20X7 in respect of the investment in A.
My workings:
Profit= 600,000 * 9/12= 450,000
Deduct:
Depreciation= 0
Impairment=20,000
Pup= (1/4*600,000)*20%=30,000
total =400,000
Parents share= 30% of 400,000
= 120,000however the answer is 106,000 and in the workings the parents share was calculated before impairment was deducted. e.g
Profit= 600,000 * 9/12= 450,000
Deduct:
Depreciation= 0
Pup= (1/4*600,000)*20%=30,000
Parents share= 30% of (450,000 -30,000)
= 126,000
less impairment
=20,000
= 106,000my question is why is impairment deducted after we take the 30% parents share? and not before
thanks
Hi,
The impairment figure that you are given is the impairment of the investment that you own and therefore it is relation to your 30% ownership. Thus you do not need to take P’s% of the impairment, you will always deduct it in full.
Thanks
Hello sir,
Question from Kaplan F2 book:
P owns 40% of the equity shares of A (Associate).
P has sold 200,000$ of goods to A at a mark up on cost of 25%. At reporting date 60% of these goods were still in the inventory of A.
Goods in inventory: 60% of 200,000$ = 120,000
Profit in inventory: 120,000 / 125 * 25 = 24,000
PUP: 40% of 24,000 = 9,600%Sir my question to you is why are we applying the holding percentage (40%) on the profit in inventory of A (24,000) when all the goods were sold by P to A. I mean why are we NOT classifying the entire 24,000 value as PUP but just 9,600 when this entire inventory of 200,000 was sold by P to A?
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