Cima F1 Exam Question No 59

Question No 59:

When the parent sells to the associate?

• - Increase COGS (which has an impact on Group RE in W5)
• - Reduce W5 retained earnings (group reserves)
• - Reduce investment in associate (CSFP)

the profit must be eliminated from the investment in associate because the inventory is in the books of the associate. The associate's inventory is not consolidated so we cannot remove the profit from the inventory line on the CSFP.