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What is the reasoning for adding a Provision for Unrealised Profit(PURP) to Cost of Sales in a Consolidated SOCI?

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What is the reasoning for adding a Provision for Unrealised Profit(PURP) to Cost of Sales in a Consolidated SOCI?

A parent sells goods to a subsidiary during the year but some of these goods remain unsold at year end thus leading to PURP. I get why we adjust for the selling price of the goods in the revenue and cost of sales when preparing consolidated SOCI, but why add the PURP to cost of sales too?

January 27th 2016 AN ACCA USER 140 Points
Recategorized February 10th 2016 AN ACCA USER

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Cost of Sales is formed as Opening stock + Purchases - Closing Stock.

The PURP is contained in Closing stock. so to remove it from Closing stock (a negative value above) means to add it in COS.

See, if my answer is enough or it needs improvement.

Thanks
Saran

March 29th 2016 AN ACCA USER 280 Points
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