Page 239 - Microsoft Word - 00 IWB ACCA F7.docx

Associates

Inter-company trading and fair values

2.1 Trading with the associate

 DO NOT eliminate balances between the associate and group companies, e.g.
receivables and payables

 DO NOT eliminate trading between the associate and group companies, e.g.
revenue and cost of sales

 Remove dividends received from associate from the statement of profit or loss

 PURP required where goods sold by or to associate are unsold at the year-end

2.2 Provision for unrealised profit (PURP)

 Calculated as for subsidiary but only recognise parent’s share

 In statement of financial position

– Reduce group retained earnings (W5)

– Reduce investment in associate (W6)

 In statement of profit or loss reduce share of associate profit (see below)

2.3 Fair values

Where the fair values of the associate’s net assets at acquisition are different to their
carrying amount the net assets should be adjusted as for a subsidiary. The effects of
this would include adjustments to post-acquisition earnings for fair value depreciation
adjustments or similar items.

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