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PUP – Sales between Associates and parent Company

Forums › ACCA Forums › ACCA FR Financial Reporting Forums › PUP – Sales between Associates and parent Company

  • This topic has 2 replies, 2 voices, and was last updated 10 years ago by sadiq01.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • November 12, 2014 at 4:24 pm #209403
    sadiq01
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    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

    November 12, 2014 at 4:29 pm #209405
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23322
    • ☆☆☆☆☆

    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?

    November 16, 2014 at 4:15 pm #210461
    sadiq01
    Member
    • Topics: 1
    • Replies: 1
    • ☆

    Hi Mike,

    Many thanks for clarifying. I will take your advice and do the PUP in Assoc. make perfect sense.

    Regards
    Sadiq

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