Question 1

SECTION A

Alpha Co owns 30% of Beta Co and exercises significant influence. During the year, Alpha sold goods to Beta for $100,000, applying a mark-up on cost of 25%. At the year-end, half of these goods remained in Beta's inventory.

What is the required adjustment for the Provision for Unrealized Profit (PURP) in Alpha's consolidated financial statements?

Accepted Answer

1. Calculate total profit on the sale (use mark-up fraction: 25/125). 2. Determine how much profit is in the unsold inventory. 3. Multiply by the parent's ownership percentage in the associate.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Treating mark-up as margin (multiplying by 25% instead of 25/125), or forgetting to multiply by the 30% ownership share.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FR — Financial Reporting Practice Exam 3

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