Consolidated statement of Financial Position 2

Question 1

Definition of Unrealised profit:

Answer 1

The profit one group company makes when it sells inventory to another company in the same group and inventory is still held at year end.

Question 2

Accounting entry for unrealised profit:

Answer 2

To eliminate unrealised profit on transfer of inventory:
Debit: Retained earnings (of the seller)
Credit: Consolidated inventories
- Adjustment is known as Provision for unrealised profit(PUP), as it is a provision against inventory for unrealised profit generated by intra-group sale.

Question 3

Impact on Consolidated retained earnings working for unrealised profit:

Answer 3

• If parent sold the goods, all of the unrealised profit will be eliminated.
• If the subsidiary sold the goods, the group share of the unrealised profit will be eliminated.

Question 4

Identifiable Asset as per IFRS 13:

Answer 4

Asset is identifiable if it is either:
- is separable. Is capable of being separated or divided from entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether entity intends to do so.
- arises from contractual or other legal rights, regardless whether those rights are transferable or separable from the entity or from other rights and obligations.