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Hi sir,
if parent company receieves profit of 100000 selling to its subsidiary, then it will reduce whole amount of intra group profit from retained earning. However If parent company (25 % share in associate- A company) gets profit of 100000 usd from intra sales to A company. we do not deduct whole amount of profit from investment in associate in consolidation. we just eliminate 25 % (25000 usd).
whDoes “wh” at the end of your post mean “Why?”
If it doesn’t, I don’t understand what your post is asking
If it does, the answer is because the Standards Interpretation Committee says that’s what should happen
OK?
yeah i meant why? u already answered but why they decide so, i dont understand it.
i have one more question. If Parent(P) has subsidiary (S) and accociate (A), and S gets profit of 1000 usd from selling to A. in this case if we prepare P s consolidated financial statements, we dont deduct that amount of profit from investment in associate as unrealised profit, but how about A gets that profit from sales to S? we would recognise that unrealised profit in investment in associate in the P s statement?
“but why they decide so, i dont understand it.”
Because an associate entity is not under the control of the parent in the way that a subsidiary is.
With a pup arising from an intra-group transaction where a subsidiary sells to the parent, the full pup is eliminated. That has the effect of reducing the profits of the subsidiary and thus reducing the parent’s share of those retained earnings for the year and, crucially, reducing also the nci’s share of those subsidiary retained earnings for the year
In a similar situation of a pup arising from a transaction with an associate entity, we are the nci and we have no control over the activities of the associate. We have no say about the calculation of the associate’s profits. But what we ARE able to achieve is the prudent approach of reducing those profits for the purposes of calculating our share of those retained earnings for the year
OK
In answer to your second post, in fact we DO make an adjustment in respect of any unrealised profits arising from either an intra-group transaction or a transaction with an associate
If the transaction is between a subsidiary and an associate, it is appropriate (says the Interpretations Committee) to eliminate the GROUP’S share of that unrealised profit no matter whether the sale is from the subsidiary or from the associate
OK?
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