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- April 11, 2019 at 11:36 am #511887toushigaParticipant
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Bpp textbook practice question bank
Phython obtained 30% of the equity shares of Cobra on 1 june 20×8 for $700,000 .It is able to execise significant influenc over Cobra.During the year to 31 May 20×9,cobra made sales of $200,000 to phytin,priced at cost plus 25% mark up.pythin still had 50% of these goods in inventory at the year end.cobra ‘s statement of profit or loss for the year ended 31 may shows profit for the year of $650,000.
What amount should be shown as ‘investment in associate ‘in the consolidated statement of finanacial position of Python as at 31 May 20×9?
The answer is $895,000. Why the answer do not account for the unrealised profit by deducting the 30%of URP from the Cobra profit for the year ,which also reduce the investment in associate?as investment in associate include the cost of investment + group share post acquisition profit which take into account of URP?
One of the example provided in the textbook
A Co has made an unrealised profit of $200,000 (1,000,000 x 25/125) on its sales to the associate. The group’s share (25%) of this must be eliminated:
DEBIT Share of profit of associate (consolidated profit or loss)$50,000
CREDIT Investment in associate (consolidated statement of financial position) $50,000
Note that if the sale had been made by the associate to the group (an upstream transaction) the posting
would have been exactly the same.
Thank you.April 12, 2019 at 4:51 pm #512106P2-D2Keymaster
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The associate has made the sales to the parent, so the adjustment is to DR Group retained earnings CR Inventory. There is therefore no requirement to adjust the investment in associate. I think that there are inconsistencies in what is written in the text book and what is included within the question bank.
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