In the context of a parent selling goods to an associate, how does the consolidated statement of profit or loss (CSPL) get affected?

When a parent company sells goods to an associate, the unrealized profit related to the goods that remain unsold at the end of the reporting period must be adjusted in the consolidated financial statements. The reason for this adjustment relates to the accounting principle of consolidation, which aims to present the financial position and performance of the parent and its subsidiaries as a single economic entity.

In this case, the costs of sales increase by the share of unrealized profit because, for the purposes of consolidation, the profits on transactions between the parent and associate are considered unrealized until the goods are sold to third parties. As a result, when the parent records the sale to the associate, the profit recognized in the parent's individual statements is eliminated to avoid overstating the consolidated profit. Therefore, it is necessary to adjust the costs of sales to reflect the true expenses incurred by the group, which do not include the profit margin on the goods that remain with the associate.

This adjustment helps ensure that only realized profits—those from transactions with external parties—are included in the consolidated statement of profit or loss, reflecting a more accurate and fair view of the parent company's financial performance.