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Dear sir,
I came across this question in BPP’s quick quiz.
Major Co. makes up its accounts to 31 December, has an 80% owned subsidiary Minor co. Minor Co. sold goods to Major Co.at a markup of 33.33%. At 31 December 2008, Major Co. had 12000 of such goods in its inventory and at 31 December 2009 had 15000 of such goods in inventory.
What is the amount by which the consolidated profit attributable to Major Co’s shareholders should be adjusted in respect of the above
A) 1000 debit
B) 800 credit
C) 750 credit
D) 600 debitThe answer is D (15000-12000)*33.33/133.33*80%
My question is that if the company had the goods in inventory in the beginning of the year, wouldn’t that inventory be sold and lead to the purchase of new inventory? why isn’t the PUP calculated on the whole amount of 15000?
At the end of last year there would have been a provision for unrealised profit in Minor’s financial statements of $12,000 * 1/4 = $3,000
At the end of this year (remember, that provision of $3,000 will NOT have been removed at any time during this year!) Minor needs a provision of $15,000 * 1/4 = $3,750
So we go to the provision account in Minor’s records, ready to put in a provision carried forward of $3,750 and what do we find there? There’s already $3,000 in there from last year! So all we need to do this year is add a further $750
OK so far?
But the question specifically asks “What is the amount by which the consolidated profit ATTRIBUTABLE TO MAJOR CO’S SHAREHOLDERS …” so the $750 movement against Minor’s retained earnings now needs to be split 80% to Major and 20% to the nci
OK?
@hemraj123 said:
Dear Sir,In the notes (PG-27), it mentions that the investment in subsidiaries and associates in the parents financial statements is measured either at cost or according to IFRS 5 if held for sale – under IFRS 3
But under IAS 27, the investment is valued either at cost, IFRS 9 or IFRS 5 if held for sale. Same is mentioned in IFRS 10. (From Iasplus.com)
I’m confused if IFRS 9 is to be used in this senario.
Thank you
Dear sir,
Regarding this post, I was looking into IFRS 9, IAS 32 and IAS 39. I know that IAS 39 is no longer relevant due to IFRS 9, but according to these, they apply to all financial instruments with exception to investments in subsidiaries, associates and joint ventures.
So I’m confused. How do we value the investments in subsidiaries and associates according to IFRS 9 when these are excluded from the standard?
Thanks
This thread has wandered a long way away from where we first started.
I’m going to ask you 2 things:
1) repost this on a new thread and
2) whenever I have dealt with a question from you and you subsequently wish to ask another question, please start it on a separate, new thread
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