Hi!
Thanks for being such a great tutor.
I will appreciate if you could help me understand the logic behind Pups in the income statement.
Suppose, P sells goods to S at 18000 (originally cost 10000) => Pups = 8000.
I understand that technically we reduce 18000 from's P's revenue and 18000 from S' costs of sells to cancel inter entity trade.
However, we cancel inter entity profit by adding 8000 to cost of sales. I would like to know the reason behind it and technically in whose cost of sales are we adding it?
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PUPs in Cons Income statement
9y ago#1The pup adjustment is always in the records of the entity that recognised that profit
As for the remainder of your question, are you asking the reason why we ADD it to cost of sales as distinct from subtracting it ... or are you asking why the adjustment is through cost of sales
why is the adjustment through cost of sales?
9y ago#3Because the inventory held by the group is over-valued by the amount of the pup
So we need to REDUCE that value of group inventory and, by reducing that figure, we INCREASE the cost of sales
Is that ok for you?
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