Inter-company sales between parent and associate

Mmsk298y ago

Hello Sir! How do you treat this question in the consolidation financial statements? In Sept, A (associate) sold goods to P (parent) for $150,000. These goods had cost A $100,000. P had $90,000 (at cost to P) in inventory at the year-end. The solution would be: DR Group Retained Earnings CR Inventory But what would the figure be as Provision for Unrealised Profit (PUP)?

DDonald8y ago#1

I googled and found that similar query is already replied by tutor here. Please see whether this can help. https://opentuition.com/topic/unrealised-profit-with-associate/ To put the subject in one place, Mike had replied that "My method which I believe is the simplest is as follows: Calculate the full unrealised profit and deduct that full amount from the associate’s results. Then when we calculate the group’s share of the associate’s results, we are automatically eliminating the group’s share of that unrealised profit" "The elimination of the pup in the associate’s statement of profit or loss has the effect of reducing the parent’s share because the profit figure is reduced". That’s the same effect as crediting Investment in Associate with the group’s share of the pup"

Mmsk298y ago#2

@trump said: I googled and found that similar query is already replied by tutor here. Please see whether this can help. https://opentuition.com/topic/unrealised-profit-with-associate/ To put the subject in one place, Mike had replied that "My method which I believe is the simplest is as follows: Calculate the full unrealised profit and deduct that full amount from the associate’s results. Then when we calculate the group’s share of the associate’s results, we are automatically eliminating the group’s share of that unrealised profit" "The elimination of the pup in the associate’s statement of profit or loss has the effect of reducing the parent’s share because the profit figure is reduced". That’s the same effect as crediting Investment in Associate with the group’s share of the pup"

Thank you @trump. I agree with your accounting entries. But the problem arises with the amount. What amount should we keep in our accounts? As $90,000 seems to be unrealized profit and then are there any further adjustments to it?

P2-D2Tutor8y ago#3

Hi, The unrealised profit is the profit made on the goods held at the year-end. The goods held amount to $90,000 and you need to work out the profit element on that, as explained above, which I think is $30,000 (90/150 x (150 - 100)). However, we cannot work out the final number as we are not told the ownership percentage in the associate. We always need to take P's share when equity accounting for the associate. Thanks

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