Comments

  1. avatar says

    I was thinking the PUP deduction in the inventory value should be from the buying company, Petras. Is the 70,000 inventory value in Signe not the closing balance after the sales? Petra has received the goods and displayed it on its balance sheet at purchased price of 60,000 including the PUP. Mike pls kindly clarify sir. Thanks so much.

    • Avatar of MikeLittle says

      The question is not “Whose inventory is overvalued?” the question is “Whose profits are overstated?” and it’s the selling company that is overstating profits so far as the group is concerned

      Ok?

  2. avatar says

    Thank you for all the detailed explanations on the PUPs. I would have a question regarding the NCI computation, normally since the subsidiary is a completely different entity, from the point of view of the NCIs the profit was realized as the subsidiary has sold the goods (they don’t care whether these were sold to the parent or outside) . Shouldn’t the PUP affect only the Group retained earnings and not the NCI?

  3. avatar says

    Mike, you have a talent in making difficult things easy for people like us. You guys are a blessing to us. I have studied this things from several tutors and failed to really understand it, and I must say, you are the man. You are the magic man. with your lectures, I am solving all PUPS and the other consol questions with ease and speed.
    God bless you.

  4. avatar says

    Hello sir

    I understand the mark up and margin. The URP. And it doesn’t matter. Who we deduct the inventory from

    But could you please clarify the retained earnings again. Still not fully 100%. Clear please

    Thank you very much

    • Avatar of MikeLittle says

      The question that gives the answer “In the seller’s books” is what you need to understand! “Which company has recognised the profit on the intra-group sale?” Now, is that profit actually realised so far as the group is concerned? NO! The profit is not achieved simply by transferring goods from one trouser pocket to another. So the adjustment to eliminate the profit must be in the records of the company that has recorded that profit – and that’s the selling company.

      Is that better?

  5. avatar says

    Hello Mike and anyone else able to help; on example 2 on p. 51 (Signe and Petras), it says the retained earnings for Signe is 0 as it’s not had time to make earnings yet. I understand this idea, but the accompanying balance sheet in the notes indicates retained earnings of $150 000 which I find confusing; how is the retained earnings zero but $150 000 on Signe’s books?

  6. avatar says

    Hello Mike and anyone else able to help; on example 2 on p. 51 (Signe and Petras), your workings indicate that the retained earnings for Signe is 0 as it’s not had time to make profits yet. I understand this idea, but the accompanying balance sheet in the notes indicates retained earnings of $150 000 which I find confusing; how is the retained earnings zero but $150 000 on Signe’s books?

    Many thanks in advance for your help!

    Monica

    • Avatar of MikeLittle says

      For working W2, Goodwill, Signe had achieved NO retained earnings because the acquisition was on the date of Signe’s incorporation. Some time later, as at the date when the consolidation is to be prepared, Signe has accumulated $150,000

      OK?

  7. avatar says

    sir, in the notes it is written that when an inventory is sold at a profit within the group, “we should calculate the unrealised profit included in inventory and note the adjustments to inventory and retained earnings on the face of the question paper. BOTH SIDES OF THE ADJUSTMENT should be must be made to the entity which has recognised this unrealised profit i:e the selling entity”

    my question is why BOTH sides of the adjustments should be made to the selling entiy?….the selling entity does no longer have that particular inventory in his books, so why we would reduce something which is not their at all in the first place….after the sale has occurred, the inventory will be in the buyers book, and the buyer is the one who would have overvalued his inventory, so should’nt we reduce the amount in the buyers account.?……….

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