kaplan- Asscoiate

Hello Green Co is an associate undertaking of Purple Co. Purple Co owns 30% of the shares in Green Co, and has done so for many years. During the year ended 31 December 20X4, Green Co made a net profit of $1.5 million. Green sold goods to Purple Co during the year with a value of $2 million, and half are still in Purple’s inventories at year end. All the goods were sold at a margin of 30%. Purple has recognised previous impairments in relation to its investment in Green Co of $225,000. In the current year, Purple wishes to recognise an additional impairment charge of $35,000. What is the share of profit of associate to be shown in Purple’s consolidated statement of Profit or Loss? A $100,000 B $115,000 C $325,000 D $415,000. 1. The answer is C. 2. The working in the book is as follows: Share of Net Profit: 30% * 1,500,000 450,000 Share of PURP: 30%*[(2m*50%)*30%] (90,000) Current Year impairment (35,000) 3. Could you explain why PUP has been deducted? -It's the associate selling to the company. Why should we remove the PUP?