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I just came across that the example 4 (pg122) of opentuition note of chapter 25 Associates (latest version)
If the parent sells to the associate:
Dr Group retained earnings/Cost of sales
Cr Investment in associate (reduce goods to cost to the group)
Example 4 (extract)
During the year, Helvellyn (Parent ) sold goods to Armboth (associate) for $40 million at a margin of 20%. At the reporting date Armboth still held half of the goods in inventory
The answer given is
P S conso
Revenue 1,645 1,280 2,925
COS (1,205) (990) (2,195)
Gross profit 703
Op. costs (190) (120) (310)
Finance cost (55) (30) (85)
Associate (25% x (200 x 6/12)) – 1 (PUP) – 1
My question is : why the adjustment is not consolidated cost of sales being added the pup of 1 but deducted from the share of profit of associate?
Good spot! Yes, the parent has made the sale and so the adjustment should be to cost of sales. I’ll get it updated.