Acca financial Accounting (FA) Study Text ac ca (FA)

If the seller is the parent,

 the profit element is included in that entity's 

accounts and relates entirely to the controlling group. 

Adjustment required: 

Dr Group retained earnings  $X (deduct the profit in W5) 

Cr Group inventory 

  $X 

If the seller is the subsidiary,

 the profit element is included in the 

subsidiary's accounts and relates partly to the group, partly to non

­

controlling interests (if any). 

Adjustment required: 

Dr Subsidiary retained earnings  $X (deduct the profit in W2 – at 

reporting date) 

Cr Group inventory 

$X 

 

 

Unrealised profit adjustment alternative 

 

The simple adjustment when the seller is the subsidiary is to adjust the 

subsidiary's retained earnings in working 2. However if you are not 

preparing all the workings an alternative method is as follows: 

Dr Group retained earnings (group %)  

$X (W5) 

Dr Non

­

controlling interests (NCI %) 

$X (W4)  

Cr Group inventory (100%) 

$X (SOFP) 

 

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