ExpertACCA · Question 42 · Preparing Simple Consolidated Financial Statements
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.
Which entity's retained earnings must be reduced by the Provision for Unrealized Profit (PUP)?
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.
Which entity's retained earnings must be reduced by the Provision for Unrealized Profit (PUP)?
Answer options:
Nebula Aerospace (the parent)
Comet Components (the subsidiary)
Both entities equally
Neither, it is only adjusted in the consolidated inventory
How to approach this question
Full Answer
Common mistakes
Practice the full ACCA FA — Financial Accounting Practice Exam 5
65 questions · hints · full answers · grading