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Provision for unrealised profit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FA – FIA FFA › Provision for unrealised profit

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • December 1, 2017 at 11:06 am #419399
    mewmewrose
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Hi,

    I come across a question about preparation of consolidated statement of financial position. But I don’t understand how is the PURP calculated.

    Xandra acquired 1.6 million (out of 2 million) of Yale’s ordinary shares five years ago for $2.25 per share.

    During the year Yale Ltd sold goods to Xandra at a mark-up of 50%. The goods cost Yale $90,000. At the year ended one-third of these goods remained in inventory.

    Provision for unrealised profit (45,000 x 50/150) = (15,000)

    Thanks.

    December 1, 2017 at 2:32 pm #419432
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    If 1/3 of the goods remained in inventory, then the cost to Xandra was 1/3 x 90,000 = 30,000.

    This is what Yale will have sold them for, and since they were selling at cost + 50%, then the profit included in the 30,000 is 50/150 x 30,000 = 10,000. This is the unrealised profit.

    (If your book gives the unrealised profit as 15,000, then either it is wrong, or you mistyped the question (maybe 1/2 the goods remained in inventory))

    I do suggest that you watch my free lectures on consolidations, because calculation of the PURP is explained, with examples.
    The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.

    December 2, 2017 at 2:31 am #419559
    mewmewrose
    Member
    • Topics: 2
    • Replies: 1
    • ☆

    Thank you for your detailed explaination. I think the answer is wrong.

    December 2, 2017 at 9:18 am #419606
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54665
    • ☆☆☆☆☆

    You are welcome 🙂

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Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Provision for unrealised profit’ is closed to new replies.

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