One thing that is really confusing me is why do we subtract inter company sales from cost of sales where we should be subtracting the cost of inter companay sales. Secondly why do we add unrealized profit in cost of sales? Thanks.
Why did we calculate the NCI using per acqn profit of R8 000 at 40%……should it not be R 9 000 as the income statement is showing post acquisition profits
Please help me to solve this question extracted from BPP mixed bank 6 question 32.18:
Lexus has owns 60%of voting equity OF Nexus. The following information relates to the results of Lexus and Nexus for the year: Lexus Nexus Revenue 350,000 150,000 Cost of sales 200,000 60,000 ————– ———— Gross Profit 150,000 90,000 ======= ========
During this year, Nexus sold goods to lexus for $50000. Lexus still have 40% of these goods in inventory at the year end. Nexus uses a 25% mark up on all goods.
What were the consolidated sales and cost of sales of the Lexus group at the year ended?
Sales Cost of sales
A $500,000 $260,000 B $500,000 $264,000 C $450,000 $260,000 D $450,000 $264,000
As per my calculation Cost of sales should be 200,000+60000-50,000+4000(PURP)=214 But no option of cost of sale 214000.
I am a bit confused because I also studied with GTG materials. For a similar example, pre-acquisition profits are deducted and not included in the consolidated IS. What is the best way to do it?
If the movement in retained earnings on show post acquisition retained earnings then it seems to be that we have added the profit twice of 8000 twice. (Example 2) .. The question states that the pre acquisition retained earnings is 8000 and the retained earning brought forward (post acquisition movement ) is 17000, then the profit for this year is 17000-8000 as you have worked out. Why then is there an additional 8000 added to the 17000 if the 17000 already shows the total movement in retained earning. Please clarify. Thanks
But the 17,000 is not the movement in the retained earnings.
The retained earnings of S at the start of 2010 were 17,000 (of which 9,000 were post-acquisition). The profit for 2010 was 8,000 (from the income statement). And so the retained earnings at the end of 2010 are 17,000 + 8,000 = 25,000.
(The profits for this year happen to be the same amount as the pre-acquisition profits, but that is just a coincidence)
Thanks a lot johnmoffat. Passed F3 today. How are important are one’s exam score. Are the scores considered by future employers and/or the university responsible for offering the B.Sc applied accounting degree? got a 75% and I’m a bit miffed by (
Congratulations on passing!! (and 75% is a perfectly good mark)
I would be very surprised if a future employer ever wanted to know your marks – all they will be interested in is whether or not you have passed.
With regard to the Oxford Brookes Bsc degree, the class of degree is affected partly by your average mark on your ACCA exams. You can see the full table by looking on the ACCA website, but (for example) to get a first class degree your average mark from all your ACCA exams has to be at least 66%.
njivan28 says
What happen when we prepare the consolidated I.S when P owns 100% of the shares in S ?
saadiy says
One thing that is really confusing me is why do we subtract inter company sales from cost of sales where we should be subtracting the cost of inter companay sales.
Secondly why do we add unrealized profit in cost of sales?
Thanks.
anyani says
In example 1. Why is there a retained earnings b/f of 20000 if the company was bought on incorporation?
anisa786 says
Why did we calculate the NCI using per acqn profit of R8 000 at 40%……should it not be R 9 000 as the income statement is showing post acquisition profits
John Moffat says
We are showing the NCI’s share of the current years profit. The current years profit of S are $8000.
avishco says
Hi all,
Please help me to solve this question extracted from BPP mixed bank 6 question 32.18:
Lexus has owns 60%of voting equity OF Nexus. The following information relates to the results of Lexus and Nexus for the year:
Lexus Nexus
Revenue 350,000 150,000
Cost of sales 200,000 60,000
————– ————
Gross Profit 150,000 90,000
======= ========
During this year, Nexus sold goods to lexus for $50000. Lexus still have 40% of these goods in inventory at the year end. Nexus uses a 25% mark up on all goods.
What were the consolidated sales and cost of sales of the Lexus group at the year ended?
Sales Cost of sales
A $500,000 $260,000
B $500,000 $264,000
C $450,000 $260,000
D $450,000 $264,000
As per my calculation Cost of sales should be 200,000+60000-50,000+4000(PURP)=214
But no option of cost of sale 214000.
Any one can help??
Thank you in advance…
John Moffat says
Assuming that you have typed the question correctly then Your answer is correct, and it would appear that BPP have made a mistake.
Dimitri says
Why don’t you remove the pre-acquisition profits from the IS, as we do for the balance sheet?
Dimitri says
I am a bit confused because I also studied with GTG materials. For a similar example, pre-acquisition profits are deducted and not included in the consolidated IS. What is the best way to do it?
John Moffat says
I have not included pre-acquisition profits!
In the income statement itself we are only showing the current years profits, which in these examples is all post-acquisition.
The note showing the movement on retained earnings is only showing the post-acquisition retained earnings.
Dimitri says
Oh, yes you are right. Thank you for the clarification, I was a bit confused with this but now that’s clear.
Thank you very much for your swift answer and for your brilliant courses. This is very helpful.
makhan1 says
Please calculation is mistake, so u should calculate that simple point.
which was 52000-22000=44000
John Moffat says
@makhan1, If you carried on watching you would see that it is corrected immediately!!!!
jnyameboame says
in the question, profit attributable to NCI is 20% * 27000 =5400
isn’t it ?
jnyameboame says
@jnyameboame, I”ve now seen my mistake. S profit was 7000. So we need to find 20% of 7000=1400. thanks
anyani says
If the movement in retained earnings on show post acquisition retained earnings then it seems to be that we have added the profit twice of 8000 twice. (Example 2) .. The question states that the pre acquisition retained earnings is 8000 and the retained earning brought forward (post acquisition movement ) is 17000, then the profit for this year is 17000-8000 as you have worked out. Why then is there an additional 8000 added to the 17000 if the 17000 already shows the total movement in retained earning. Please clarify. Thanks
John Moffat says
But the 17,000 is not the movement in the retained earnings.
The retained earnings of S at the start of 2010 were 17,000 (of which 9,000 were post-acquisition).
The profit for 2010 was 8,000 (from the income statement).
And so the retained earnings at the end of 2010 are 17,000 + 8,000 = 25,000.
(The profits for this year happen to be the same amount as the pre-acquisition profits, but that is just a coincidence)
anyani says
Thanks a lot johnmoffat.
Passed F3 today.
How are important are one’s exam score. Are the scores considered by future employers and/or the university responsible for offering the B.Sc applied accounting degree?
got a 75% and I’m a bit miffed by (
Thanks again opentuition, you guys rock!
John Moffat says
Congratulations on passing!!
(and 75% is a perfectly good mark)
I would be very surprised if a future employer ever wanted to know your marks – all they will be interested in is whether or not you have passed.
With regard to the Oxford Brookes Bsc degree, the class of degree is affected partly by your average mark on your ACCA exams. You can see the full table by looking on the ACCA website, but (for example) to get a first class degree your average mark from all your ACCA exams has to be at least 66%.
sha120287 says
This is fantastic video lectrures which really helpfull for beginer students of Consolidation f income statements.Thanks a loot to open tution
noorain says
in this question 52000-22000=54000 but u wrote 44000?