What is the treatment of transactions between a group and an associate in the Consolidated Statement of Profit or Loss (CSPL)?

When considering transactions between a group and an associate in the Consolidated Statement of Profit or Loss (CSPL), the correct treatment stipulates that no adjustment is made to revenue or cost of sales. This is because the equity accounting method is typically employed for associates, which involves recognizing the group’s share of the associate's profits rather than consolidating the associate's financial performance line-by-line with that of the group.

Under the equity method, an investor records its investment in the associate at cost and subsequently adjusts this carrying amount for its share of the profits or losses of the associate after acquisition. Revenue transactions between the group and the associate do not directly affect the revenue figures in the consolidated accounts since each entity continues to report its financial performance independently within their respective statements. Thus, despite the transactions occurring, they are not typically eliminated in the same manner as inter-company transactions within a consolidated group, where the entities are fully consolidated, and a detailed elimination process is required.

This approach avoids distorting the financial performance reported in the CSPL and provides a clear view of the group's own operations, reflecting only the share of profit or loss from the associate in the consolidated financial results.