Question 1

Section B - Case 1: Group Consolidations

**Scenario: Nebula Aerospace**
On 1 January 20X5, Nebula Aerospace acquired 80% of the equity share capital of Comet Components. The purchase consideration was $500,000 cash. At the date of acquisition, Comet's share capital was $100,000 and its retained earnings were $250,000. The fair value of the non-controlling interest (NCI) at acquisition was $110,000. 
During the year ended 31 December 20X5, Comet made a profit of $80,000. Nebula sold goods to Comet for $50,000 at a 25% mark-up on cost. Half of these goods remain in Comet's inventory at year-end. Comet owes Nebula $20,000 at year-end.

Calculate the Provision for Unrealized Profit (PUP) in inventory at year-end. (Enter the number only)

Accepted Answer

1. Find the value of goods remaining in inventory. 2. Calculate the profit element using the mark-up fraction (Mark-up / (100 + Mark-up)).

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Calculating 25% of $25,000 ($6,250) treating mark-up as margin, or calculating PUP on the entire $50,000 sale.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

More questions from this exam