Page 211 - SBR Integrated Workbook STUDENT S18-J19
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Tax
3.5 Consolidation issues: PURPs
A provision for unrealised profit adjustment (PURP) reduces the carrying amount of
inventory in the consolidated financial statements. It has no impact on the tax base of
the inventory.
A deductible temporary difference arises and so a deferred tax asset should be
recognised in the consolidated financial statements.
Example 7
Provisions for unrealised profits
Raven owns 90% of the ordinary shares in Claw. During the year ended 31
December 20X1, Raven sold goods to Claw for $15 million making a mark-up
of 20%. At the reporting date, 80% of these goods remained in Claw’s
inventories.
The tax base of the inventories is their carrying amount in the individual (non-
consolidated) financial statements. The tax rate is 20%.
Discuss the accounting treatment of the above in the consolidated
financial statements of the Raven group for the year ended 31 December
20X1.
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