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Hi Chris, hope you are doing well.
Q) Ulysses Co owns 25% of Grant Co, which it purchased on 1 May 20X8 for $5 million. At
that date Grant Co had retained earnings of $7.4 million. At the year-end date of
31 October 20X8 Grant Co had retained earnings of $8.5 million after paying out a
dividend of $1 million. On 30 September 20X8, Grant Co sold $600,000 of goods to
Ulysses Co, on which it made 30% profit. Ulysses Co had not resold these goods by
31 October.
At what amount will Ulysses Co report its investment in Grant Co in its consolidated
statement of financial position at 31 October 20X8?
1) $5,000,000
2) $5,275,000
3) $5,230,000
4) $4,855,000Bpp answer: $5,300,000(Cost of inv-5m plus post acq 275k less PURP 45k)
Doubt:
Why have they reduced the PURP of 45k from the investment in associate figure, as it an upstream transaction from associate to the parent(dr share of profit of associate cr inventory) shouldn’t the PURP of 45k be reduced from Inventory figure rather than the Investment in associate figure? So shouldn’t the answer be $5,275,000?The unrealistic profit of seller must be reduced, in this case Grant Co the associated is the seller, and Ulysses is the buyer, then reduce inventory in the consolidated SFP.
emily1 wrote:Hi Chris, hope you are doing well.
Hi,
I agree with your answer in that the direction of the sale means that the parent holds the inventory and so we can reduce the inventory value in the CSFP. The adjustment to profit is done in the CSPL (and also via the group retained earnings figure in the CSFP). It may be that the answer has not been updated for the recent changes to the syllabus.
Thanks
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