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Hi Mike,
I have taken this paragraph from the f7 notes the chapter on associate.
this elimination is best achieved by accounting for any unrealised profit ALWAYS in the associate’s Statement of Profit or
Loss and Other Comprehensive Income. It does not matter whether the goods were bought from, or sold to, the associate.
ALWAYS in the associate’s records.But we are making the parent’s financial statements does this means that we dont have to make any adjustment for associate?
Thanks
The adjustment for the unrealised profit that has been recognised in a transaction by an associate with a group entity is made in the associate’s retained earnings figure (that will be given to you in the question)
When compiling working W3 the associate’s retained earnings come in to play because working w3 takes:
H’s own +
H’s share of S post-acquisition retained +
H’s share of A post acquisition retained –
goodwill impaired since acquisition (just our share) –
any impairment in the investment in the associate
So, by reducing the post-acquisition retained earnings of the associate by the full amount of the pup and then taking only our share of those retained earnings, we are complying with the standard that says …
… ‘it is appropriate to eliminate the group’s share of any pup arising from a transaction with the associate’
OK?
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