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In the BPP exam kit, there is a question on the consolidated statement of financial position (Swing and Cat).
When they are calculating Group retained earnings to perform the statement, they have decreased the figure with PURP.
Any reason why PURP is decreased from it when performing the statement since it doesn’t explain it.
Thanks.
Swing has invoiced Cat at Swings selling price and therefore the profit on everything sold to Cat has been included in Swings profit (and therefore in Swings retained earnings).
For goods that Cat has sole externally that is fine, but for those items that still remain in Cat’s inventory, the group has not made the profit (because they have not been sold externally) and therefore the value of the inventory needs reducing by the PURP and also the retained earnings need reducing by the PURP.
This is all explained in my free lectures on consolidations. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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