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Hello sir,
Question from Kaplan F2 book:
P owns 40% of the equity shares of A (Associate).
P has sold 200,000$ of goods to A at a mark up on cost of 25%. At reporting date 60% of these goods were still in the inventory of A.
Goods in inventory: 60% of 200,000$ = 120,000
Profit in inventory: 120,000 / 125 * 25 = 24,000
PUP: 40% of 24,000 = 9,600%Sir my question to you is why are we applying the holding percentage (40%) on the profit in inventory of A (24,000) when all the goods were sold by P to A. I mean why are we NOT classifying the entire 24,000 value as PUP but just 9,600 when this entire inventory of 200,000 was sold by P to A?
Hi,
Whenever we adjust anything to do with the associate we always adjust for our share as that reflects the influence we have over the associate. Don’t forget too that for PUP adjustments we only adjust for the goods that have been sold to third parties outside the group.
Thanks
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