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Patula Co acquired 80% of Sanka Co on 1 October 20X5. At this date, some of Sanka Co’s inventory had a carrying amount of $600,000 but a fair value of $800,000. By 31 December 20X5, 70% of this inventory had been sold by Sanka Co.
The individual statements of financial position at 31 December 20X5 for both companies show the following:
Patula Co
($’000)
Sanka Co
($’000)
Inventories
3,250
1,940
What will be the total inventories figure in the consolidated statement of financial position of Patula Co as at 31 December 20X5?Hello Sir, i needed help understanding why in the answer, they added the PURP?
I know it would be for the purp (800-600)*0.3 = 60
So what i did was (3250+1940-60) but in the answer they added the purp and i do not get why. Kindly assist.Hi,
This is not a PURP adjustment, it is a fair value adjustment where the FV at acquisition is 200 (800 – 600) higher than the book value, so we would need to increase the group inventory by this amount. However, only 30% is still in group inventory at the reporting date so we wouldn’t add the full 200 but 30% of the 200, being the 60
Hope that helps.
Thanks
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