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When sales are made by associate to parent, is the unrealised profit also deducted from inventory?
As far as i know its deducted only from consolidated retained earnings and ‘investment in associate’ in the SOFP.From what I can follow, Kaplan seem to deduct the parent’s share of the pup from inventory and from retained earnings
My way of dealing with pups arising from transactions with associates (whether the transaction is from parent to associate or from associate to parent) is to deduct the full amount of the pup from the associate’s retained earnings
Then, by including just the parent’s share of the associates profits in the consolidation, we automatically have removed the parent’s share of the pup
In addition, when calculating working W5A, Investment in Associate, that entry to adjust for the pup has now reduced the associate’s post-acquisition retained earnings
The net effect is to Dr Group Retained Earnings by the parent’s share of the pup and reduce the asset Investment in Associate by that same amount
OK?
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