Question 1

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.

Which entity's retained earnings must be reduced by the Provision for Unrealized Profit (PUP)?

Accepted Answer

Identify who the seller is. The seller recorded the profit, so the seller's retained earnings must be adjusted.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

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

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 2

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