ACCA Applied Knowledge · Financial Accounting · Associates
Kappa Co owns 25% of Omega Co. Omega reported profit after tax of $320,000 for the year. During the year Kappa sold goods to Omega for $120,000 at cost plus 20%; Omega had sold none of them by the year end. What amount is included in Kappa's consolidated statement of profit or loss as share of profit of associate?
The share of profit of associate is $75,000. Kappa's 25% of Omega's $320,000 profit is $80,000, less its 25% share of the $20,000 unrealised profit on the unsold goods, which is $5,000.
- A$75,000Correct
- B$80,000
- C$77,500
- D$85,000
Explanation
Profit in the sale = 120,000 x 20/120 = 20,000. Share of Omega's profit = 25% x 320,000 = 80,000. Kappa's share of the unrealised profit is 25% x 20,000 = 5,000, so the figure is 75,000. $85,000 adds the adjustment instead of deducting it, and $77,500 deducts only... a wrong base.
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