Page 343 - F1 Integrated Workbook STUDENT 2018

Consolidated Statement of Financial Position

3.10 Provision for unrealised profits (PURP)

If a parent and subsidiary sell to each other we must adjust the
inventory so that it is stated at original cost to the group.

The PURP is calculated using either the mark-up or margin method.

Mark-up (cost plus) Margin

Profit is based on cost and Profit is based on selling price and
calculated by taking the selling price calculated by taking the profit % of
of closing inventory divided by 100 + selling price of closing inventory.
profit % and multiplied by the profit E.g. Inter-company sales of $12,000,
%. E.g. Inter-company sales of all remained in inventory at the year
$12,000, all remained in inventory end and had been sold at a margin
and has been sold at a mark-up of of 20% = $12,000 × 20% = PURP of
20% = $12,000/120 × 20 = PURP of $2,400.
$2,000.

3.11 The adjustment:

 Decrease inventory.

 Decrease group reserves (W5) if the parent sells or

 Decrease net assets at the reporting date (W2) if the subsidiary sells.

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