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Tips to calculate unlrealised profit on intragroup trading

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  • This topic has 1 reply, 2 voices, and was last updated 4 years ago by P2-D2.
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  • November 25, 2018 at 3:45 pm #485941
    kayzah
    • Topics: 18
    • Replies: 48
    • ☆☆

    Hi,

    I’m a bit confused with the calculation of provision for unrealised profit (PUP).
    Say a profit margin of 25%, and closing intragroup inventories of 100.

    Sometimes the PUP will be calculated as 100*25% = 25

    And on other occasions as 100*25/125 = 20

    How do we figure out which calculation is appropriate in a given scenario?

    Thank you in advance.

    Kay

    November 29, 2018 at 3:23 pm #486448
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6301
    • ☆☆☆☆☆

    Hi,

    The first scenario you note is where a gross margin is applied to the selling price, and the second is where a mark up has been applied to the costs.

    If you are really struggling with mark-ups and margins then you will need to go back and look at the lectures covering these in the Management Accounting paper.

    Thanks

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