Question 1

**Section B - Case 1: Group Consolidations**

*Scenario: On 1 January 20X5, Zenith Heavy Industries acquired 80% of the equity share capital of Apex Robotics for $2,500,000. At the date of acquisition, the fair value of Apex's net assets was $2,000,000. Zenith measures the Non-Controlling Interest (NCI) at fair value, which was $550,000 at the acquisition date. During the year ended 31 December 20X5, Zenith sold goods to Apex for $400,000 at a mark-up of 25%. Half of these goods remain in Apex's inventory at year-end. At 31 December 20X5, Zenith's retained earnings are $5,000,000. Apex's retained earnings were $1,000,000 at acquisition and $1,500,000 at year-end.*

How is the Provision for Unrealized Profit (PUP) accounted for in the consolidated statement of financial position?

Accepted Answer

Identify who made the sale (Zenith, the parent). The seller holds the unrealized profit in their retained earnings. The buyer holds the overvalued inventory. Reduce both.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Deducting the PUP from the subsidiary's retained earnings, which would incorrectly reduce the NCI.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 1

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