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This is taken from the December 2019 Sample exam.
In December 20X4 Jogger Co (subsidiary) sold goods to Runner Co (parent) for $6.4m, earning a gross margin of 15% on the sale. Runner Co still held $4.8m of these goods in its inventories at 31 March 20X5.
In the answers the PUP of $720 was all put in the Retained Earnings working.
Shouldn’t the $720 be split into the Retained Earnings and the NCI calculation since it is the subsidiary who is selling to the parent?Hi,
Welcome to the FR forum.
The profit that is unrealised is adjusted in the retained earnings of the seller, so here it would be the subsidiary’s retained earnings at the reporting date. This adjustment we would put in the net assets working in full to retained earnings.
The post acquisition movement in net assets from the net assets working is then shared between the group and NCI, so it depends on what the question is specifically asking for as to what the answer is in this instance. I have a feeling that the PUP is already included in the post-acquisition movement in net assets and so feeds in automatically to the answer.
Thanks
Hi,
Welcome to the FR forum.
The profit that is unrealised is adjusted in the retained earnings of the seller, so here it would be the subsidiary’s retained earnings at the reporting date. This adjustment we would put in the net assets working in full to retained earnings.
The post acquisition movement in net assets from the net assets working is then shared between the group and NCI, so it depends on what the question is specifically asking for as to what the answer is in this instance. I have a feeling that the PUP is already included in the post-acquisition movement in net assets and so feeds in automatically to the answer.
Thanks
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