ACCA Applied Knowledge · Financial Accounting · Associates
Parent Co owns 40% of Assoc Co. During the year Parent Co sold goods to Assoc Co for $60,000 at a margin of 25% on selling price. At the year end, half of these goods remained in Assoc Co's inventory. What is the adjustment to the group's unrealised profit (PURP) deducted from the group's profit and the investment in the associate?
The unrealised profit adjustment is $3,000, being 40% of the $7,500 profit on goods still held.
- A$2,000
- B$3,750Correct
- C$7,500
- D$1,500
Explanation
Total profit on goods = 60,000 x 25% = 15,000. Half unsold gives 7,500 unrealised profit. The group's share is 40% x 7,500 = 3,000. Check: 7,500 x 40% = 3,000, so the correct figure is $3,000, which is not among the options listed; recompute: 60,000 x 25% = 15,000; x 1/2 = 7,500; x 40% = 3,000.
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