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Hi, i’d like to ask a question : if parent sold goods to sub for $450 and the PURP calculated is $45 how do i account this in income statement(particularly in sales and cost of sales section)? do i need to add the purp in cost of good sold and how about sales? Thank you
Deduct $450 from both the combined revenue figure and the combined cost of sales figure
That eliminates the intra-group trade
Now consider the pup … if there is one! If the subsidiary has sold all these goods, then there is no pup to calculate. Pups are only relevant where, at the end of the year, there are still some of these intra-group traded goods in inventory
These goods (if they’re still in inventory at the year end) include a profit element of $45 so, so far as the group is concerned, the combined inventory is overvalued by that amount and we need to adjust the figures in order to remove that unrealised profit
The adjustment is effected by ADDING the $45 to the cost of sales figure of the entity that has made the sale (in your post, that’s the parent’s cost of sales)
If you are interested in the double entry aspect, the ‘other half’ of the adjustment is on the statement of financial position where the current asset of combined inventory is reduced by that same $45
OK?
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