Page 346 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 22

Example 2a

Extract from Lobster and Crab example:

(i) During November 20X5 Crab sold goods to Lobster for $10,000 at a
margin of 30%. At the reporting date, 40% of these goods had been sold
by Lobster.

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
L

75% NCI = 25% Note: control for only 9/12 of year
1 Apr X5

C

(W2) Adjustment for intra-group sales and purchases

Reduce both revenue and cost of sales by $10,000 as sales made
during post-acquisition period

(W3) Calculation of PURP

$
Profit element (30/100 × $10,000) 3,000

Unrealised profit on proportion of goods unsold at the reporting date:

60% × $3,000 = $1,800

Note that the question gives the percentage of goods sold, rather than
unsold.

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