ExpertMedium1 markShort Answer
ACCA · Question 43 · Preparing simple consolidated financial statements
Scenario: TechNova PLC acquired 80% of CyberNetix Ltd on 1 Jan 20X5 for $500,000 cash. At acquisition, CyberNetix's retained earnings were $200,000 and share capital was $100,000. NCI fair value at acquisition was $120,000. During 20X5, TechNova sold goods to CyberNetix for $80,000 (25% mark-up on cost). Half remained in inventory at year-end (31 Dec 20X5). CyberNetix's 20X5 profit was $150,000.
Calculate the Provision for Unrealized Profit (PUP) that must be eliminated from consolidated inventory. (Enter numbers only)
Scenario: TechNova PLC acquired 80% of CyberNetix Ltd on 1 Jan 20X5 for $500,000 cash. At acquisition, CyberNetix's retained earnings were $200,000 and share capital was $100,000. NCI fair value at acquisition was $120,000. During 20X5, TechNova sold goods to CyberNetix for $80,000 (25% mark-up on cost). Half remained in inventory at year-end (31 Dec 20X5). CyberNetix's 20X5 profit was $150,000.
Calculate the Provision for Unrealized Profit (PUP) that must be eliminated from consolidated inventory. (Enter numbers only)
How to approach this question
Multiply the total profit on the intra-group sale by the fraction of goods still in inventory.
Full Answer
Total profit on the sale was $16,000. Since half (50%) of the goods remain in inventory at year-end, the unrealized profit is $16,000 * 50% = $8,000. This must be deducted from consolidated inventory.
Common mistakes
Eliminating the full $16,000 profit, forgetting that half the goods were sold to third parties.
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