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Hi Kim,
If there was a intercompany trading and unrealized profit arise from that trading, then why do we make provision(stated in the answer sheet) ? can’t we make adjustment ? or is it counted both making provision or adjustment is basically the same ?
the question is Francise december (2014)
Thank you Kim !
“Provision for unrealised profit” (“PURP”) is the name of the adjustment made on consolidation.
The name of this adjustment is a very old one – it is not a “provision” (because it is not a liability). Rather it is an allowance (like an allowance for credit losses or an allowance for depreciation).
(You may still find the terms “provision for bad debts” and “provision for depreciation” used in the real world – but these are not provisions within the meaning of IFRS (IAS 37) – and should be avoided :-))
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