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Mike
Q146 of BPP Practice & Revision Kit says unrealised profit results in a Credit to Group Inventory, however, in Q155, it says Group inventory is unaffected as Associate is not part of the group. Why are the answers fundamentally different even though both involve unrealised profits with associates. I thought upstream and downstream transactions would result in the same postings.
Thanks.
Jean.Jean, I’ve been giving this particular area some deep thinking just recently
From what I can see from te Kaplan and BPP methods, upstream differs from downstream
However, I fail to understand how the financial statements can make sense following their method
It’s a fundamental rule that, whenever inventory is affected by a double entry, it affects both the cost of sales figure and the inventory on the statement of financial position
So it isn’t possible to (say) debit inventory and credit something else. It HAS to be debit inventory (in cost of sales or the asset) and credit inventory (in the asset or in cost of sales)
Thus I continue to maintain that ‘my method’ of always eliminating any pup arising from a transaction between the group and an associate should be adjusted in the associate’s records
You ask why the BPP treatment is fundamentally different
I cannot answer that!
Sorry
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