Unrealised profit adjustment in consolidated balance sheet of associate

Unrealised profit to be eliminated from cbs for

Stock of x includes 25000/- purchased from h which sells at cost+25% 

Stock of h includes 36000/- purchased from x which sells goods at cost+ 20%

H has 35%shares in x... 

Solution is given as consolidated p&l a/c 3850

                                 To investment in associate 3850

 

My doubt is why are they adjusting consolidated p&l for both it will be only stock of x Ltd?? 


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Quick Summary
This discussion explores the adjustment of unrealised profit (PURP) within the consolidated balance sheet when dealing with an associate company. The core question revolves around how to correctly eliminate profits on intra-group stock sales between the parent and the associate, and how this impacts the consolidated profit and loss account and the investment in associate. Different scenarios are considered, including who made the sale (parent vs. associate) and the correct accounting entries for both the income statement and the balance sheet.

I could not get the calculations but theoretically, if parent made a sale, all PURP will be charged in the parents books. If, Subsidiary/ associate made the sale, then all PURP will be charged between the H and X in their ownership ratio. In Income statement:

  • If A is the seller - reduce the line “share of A’s PAT”

  • If P is the seller - increase P’s COS

In balance sheet group accounts

  • If A is the seller - reduce A’s Retained earnings and P’s Inventory

  • If P is the seller - reduce P’s Retained Earnings and the “Investment in Associate” line

    I hope someone will post a solution for this.

Originally posted by : yasaswi gomes
 

 

 

I still did not get it. Many websites are telling us to reduce the sale cost from group sales and cos. Then, increase cos by purp and reduce inventory by purp. 

But either for parent to sub or sub to parent intragroup sales, we use consolidated reserves. I am not able to get hold of the third entry example. Don't foegwt the dta. 

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