What is the difference between upstream and downstream PURP?

A downstream transaction is a sale from the parent company to a subsidiary, while an upstream transaction is a sale from a subsidiary to the parent company. The direction determines which entity's retained earnings are adjusted.

How do I adjust for PURP in the consolidated financial statements?

You must make a consolidation adjustment to debit retained earnings and credit group inventory for the amount of the unrealised profit. For upstream sales, the debit is to the subsidiary's earnings and is allocated between the group and NCI.

What if the inventory is only partially sold by the year-end?

The PURP adjustment is only calculated on the portion of inventory that remains within the group at the reporting date. Any goods sold to an external customer have realised their profit and require no adjustment.

How many hours should I spend practicing PURP questions?

Focus on quality over quantity; spend one to two focused hours specifically on mastering one upstream and one downstream inventory question. Once you can do those accurately, you can move on.

What happens if I get the PURP calculation wrong in the exam?

You will likely lose marks for the specific PURP working, but you can still earn marks on the rest of the consolidation if your structure is sound. Examiners award marks for each part, so a mistake here isn't a total failure of the question.

Does PURP apply to associate companies as well?

Yes, but the adjustment is different. You only eliminate the group's share of the unrealised profit, and the adjustment is made against the 'Investment in Associate' account, not by creating a separate PURP provision.

ACCA SBR

PURP Accounting in ACCA SBR Consolidations

A clear guide to Provision for Unrealised Profit (PURP) in ACCA SBR group accounts. Learn the journal entries and consolidation adjustments for upstream and.