ACCA Applied Knowledge · Financial Accounting · Associates
Ross owns 25% of Tate, an associate. During the year Ross sold goods to Tate for $200,000 at a margin of 30% on selling price. At the year end Tate still held 40% of these goods. Tate's profit after tax was $400,000. What is the amount of share of profit of associate in Ross's consolidated statement of profit or loss?
The share of profit is $94,000. Ross takes 25% of Tate's $400,000 profit, giving $100,000, then removes its 25% share of the unrealised profit on goods still held, which is $6,000 (25% of $24,000). Deducting the full $24,000 would be wrong.
- A$94,000Correct
- B$100,000
- C$76,000
- D$97,600
Explanation
Unrealised profit = 200,000 x 30% x 40% = 24,000. Ross's share is 25% x 24,000 = 6,000. Share of profit = 25% x 400,000 = 100,000, less 6,000 = 94,000. $76,000 deducts the full 24,000 instead of the 25% share.
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