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Hi
There is a question in our online mock exam :
During the year, the parent company of a group of companies sold goods to a 30% associate company to a value of $800,000 realising 20% margin and the associate sold goods to the parent to a value of $420,000 recognising a gross profit of 25%.
None of these goods had been sold to the outside world by the year end. By how much should revenue and costs of sales be reduced by way of cancellation?
a $265,000
b $191,500
c $Nil
d $1,220,000
the system is saying “Nil” is the right answer.
From my understand PUP should be eliminated
please show me how this is possible
Your help is greatly appreciated.
Sadiq
Is this one of mine? If it is, I am saying that, because an associate is not a group company, there is no cancellation of intra-group trading. So there is no concept of deducting from group revenue and group cost of sales the value of the intra-group trade
The adjustments to eliminate the pups are, in my method, put through the Associate’s retained earnings calculation in their column in working W3
By doing that, we then take our 30% of the adjusted Associate’s post-acquisition retained earnings into the combined consolidated retained earnings and that automatically has eliminated the group’s share of the pups arising on a sale – purchase to / from an associate
Ok?
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