- This topic has 3 replies, 2 voices, and was last updated 3 years ago by
.
- Posts
- Topics: 3
- Replies: 1
- ☆
Why does the group inventory be reduced by the amount of unrealised profit applicable instead of inventory value?
please explain the reason for thatReference:
During the year Borough sold goods too High for $10,000 at a margin
of 50%. By the reporting date, High had only sold 80% of these goods.
Included in the receivables of Borough and the liabilities of High are
intragroup balances of $5,000.
Answer:
Provision for unrealised profit
The profit on the intra-group sale was $5,000 (50% × $10,000).
The unrealised profit still in inventory is $1,000 (20% × $5,000).
The parent was the seller, so retained earnings is adjusted in (W5)
Dr Retained earnings $1,000
Cr Inventories $1,000The group still has the inventory – we just need to strip out the unrealised profit element.
There is 2k of inventory of which 1k is unrealised profit.
BTW – apart from the deferred tax, PUPs are very much FR rather than SBR.
You may find it useful to watch our related FR lecture which goes through the basics.
- Topics: 3
- Replies: 1
- ☆
TOPIC: IAS 19 Asset ceiling
The proforma used in Kaplan study text for reconciliation and finding the remeasurement component is too confusing, particularly for asset ceiling adjustments. Can I follow the proforma used in OT lectures instead for IAS 19 problems in the exam?
If anyone could explain the answer for ‘Test your understanding 6 -Arc’ (page no:214 of the study text) it would be very helpful. Thank you.I know this is a different topic and I shouldn’t post like this, But I am not able to create a new forum, apologies! Also please fix the bug:)
- The topic ‘Treatment of group Inventory with respect of unrealised profits in Consolidation’ is closed to new replies.