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python obtained 30% of the equity shares of Cobra on 1st June, 20×8 for $700,000 . it is able to exercise significant influence over cobra.During the year to 31st may 20×9 cobra made sales of $200,000 to python, priced at cost plus 25% mark up. python still had 50% of these goods in inventory @ the year end. cobra statement of profit and loss for the year ended 31 may 20×9 shows profit of $650,000.
what amount should be shown as investment in associate in the CSOFFP of python as at 31 may, 20×9.
the answer given is $895,000
my question is why the PUP`S effect is not reflected in the Investment in associate although in their answer they said “The URP will be credited to the group inventory, not investment in associate” am not happy with the explanation Sir, please help me out.My answer would have shown $889,000!
That’s $700,000 cost + share of post acquisition retained
This year’s retained need the adjustment for the group’s share of the associate pups
Pups are $20,000 (I assume that you’re happy with that)
My adjustment is to reduce associate year’s profits by $20,000 down to $630,000, take our share of 30% = $189,000 and add to the cost of $700,000 to arrive at $889,000
The BPP and Kaplan approach is to deduct our share of associate pup (30% x $20,000 = $6,000) from group retained earnings and from combined inventory
I don’t believe that this will represent a deal breaker between pass / fail in the exam
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