Page 342 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 22

Example 1a

Extract from Hide and Seek example:

(ii) During the year ended 31 December 20X5, HIde sold goods to Seek for
$25,000 making a gross profit margin on the sale of 30%. At the
reporting date, one third of these goods remained unsold in the
inventories of Seek.

Required:

Prepare the group structure diagram (W1).

State the adjustment required to remove intra-group sales and
purchases (W2), along with the calulation of the provision for unrealised
profit (PURP) (W3) for inclusion in the consolidated statement of profit
or loss for the year ended 31 December 20X5.

Solution

(W1) Group structure
H

80% NCI = 20%
1 Jan X1

S

(W2) Adjustment for intra-group sales and purchases

Reduce both revenue and cost of sales by $25,000.

(W3) Calculation of PURP

$

Profit element (30/100 × $25,000) 7,500
Unrealised profit on proportion of goods unsold at the reporting date:

1/3 × $7,500 = $2,500.

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