1. avatar 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…

    • avatar 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?

      • Profile photo of 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.

      • avatar 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.

    • avatar 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

      • Profile photo of 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)

      • avatar 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!

      • Profile photo of 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%.

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