1. avatar says

    I would have a question concerning the following scenario:

    A parent company sells goods to a subsidiary, and a part of these goods is still in the inventory of the subsidiary at the end of the year. What do we do with the unrealised profit? Should we deduct it? Is it different if the sale is from the subsidiary to the parent company?

    I understand that we have to deduct the unrealised profit in any case. Am I right?

      • Profile photo of John Moffat says

        @Miss A.., Yes. Included in S’s sales is 28,000 of sales to P, and included in P’s cost of sales is 28,000 which is what they were charged by 3.

        In the consolidated income statement we only want to show sales and purchases outside the group, and so 28,000 needs removing from sales and from cost of sales.

  2. Profile photo of joeko91 says

    Fantastic! I really enjoyed the joke about those that would be exempted from F3. The lecture makes things that appear difficult at first quite easy to understand. It’s a remarkable experience for me.

  3. avatar says

    why is the profit 2000? as the inventory that was “left” was 1/4th.. which should mean that that 1/4th is the “not sold” inventory and so the profit should be taken as 28000-7000+21000, 21000/1.4(mark up)=15000
    so the profit should be 6,000. PLEASE TELL ME IF I’M WRONG.

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