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I am having a hard time understanding the rationale behind the profit or loss entries regarding associate PUP.
[[ “The group share of any unrealised profit arising on transactions between the
group and the associate must be eliminated.
• If the associate is the seller:
Dr Share of the associate’s profit (P/L)/Retained earnings (SFP)
Cr Inventories (SFP)
• If the associate is the purchaser:
Dr Cost of sales (P/L)/Retained earnings (SFP)
Cr Investment in the associate (SFP)” ]]I understand that we account for parent’s share of PUP only i.e. by Dr. Retained Earnings in the SFP. But what’s the logic behind the debits of P/L. Thanks
PUPs are really an FR topic. At this level they are only exciting from a DT perspective.
I don’t think there is a definitive approach for associates (unlike subs where you must adjust the seller).
I would tell students in class to calculate the share of the PUP then always deduct it from the share of associate’s profit in the P&L. Keep it simple.
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