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Unrealised profit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Unrealised profit

  • This topic has 3 replies, 2 voices, and was last updated 8 months ago by P2-D2.
Viewing 4 posts - 1 through 4 (of 4 total)
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    Posts
  • October 31, 2024 at 8:29 am #712932
    huzaifaminhas
    Participant
    • Topics: 9
    • Replies: 3
    • ☆

    Jelly Co purchased 90% of candy Co on 1 January 20X8. During the year ended 31 December 20X8, candy Co sold goods to jelly Co for $16m at a mark-up of 25%. Jelly Co has 40% of these goods left in inventory at 31 December 20X8.
    Identify the total unrealised profit and how this should be adjusted in the consolidated statement of profit or loss for the year ended 31 December 20X8.

    So the answer mentioned is 1.28 million of unrealised profit and deduct from consolidated cost of sales, aren’t we supposed to add 1.28 million to cost of sales rather than deduct?

    November 3, 2024 at 10:31 am #712989
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7177
    • ☆☆☆☆☆

    Yes, the journal entry for the PURP is to debit cost of sales, which will increase the cost of sales figure.

    November 3, 2024 at 11:46 am #712992
    huzaifaminhas
    Participant
    • Topics: 9
    • Replies: 3
    • ☆

    answer is 1.28m unrealised profit and deduct from consolidated cost of sales since purp needs to be eliminated to reduce consolidated profit. is it right or wrong, please explain.

    November 10, 2024 at 7:30 pm #713164
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7177
    • ☆☆☆☆☆

    The answer must be wrong as the PURP needs to be added in to the cost of sale figure to increase the overall expense and reduce the profit.

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