Comments

  1. Profile photo of cecel says

    Hi Mike.
    I am confused with this question, regarding the dividends. In the course notes as well as in my text book, it is stated that both the nci and the dividends are to be shown in the statement of changes in equity an not in the income statement. I take that to mean whether proposed or declared div, so why are you including it? Now I don’t know what is the correct income format to write in the exam

  2. avatar says

    Great Lectures Sir Mike! Thanks so much!
    Regarding pup. Why do we reduce the unrealised amount from COS as opposed to from revenue? Wouldnt that distort (overstate) the sales figure (even if profit would be correct either way)? Wouldnt it be more informative to reduce the amount from the sales figure since it is this number that has been overstated with the hopes of making a profit and not the COS figure that has been understated? I can never wrap my head around this logic, any help would be greatly appreciated!!

    • Profile photo of MikeLittle says

      No! We reduce revenue and cost of sales by the intra-group trade, so that eliminates the overstated revenue that is concerning you.

      The adjustment for pup is actually an adjustment to group closing inventory that is overvalued by the value of the pup.

      And closing inventory is an element involved in the calculation of cost of sales.

      Your post talks of “reduce the unrealised amount from COS” We don’t! We add it to cost of sales. It’s important that you remember that! A reduction in the value of closing inventory means that cost of sales increases and therefore profit decreases – which is what we were trying to achieve when we decided we needed a pup

      OK?

  3. Profile photo of nkmile64 says

    Wonderful lecture!
    Thank you Open Tuition and Sir Mike. I would like to ask though, would I miss one mark for accidentally deducting the URP from Revenue, instead of the preferred treatment of adding it to Cost of Sales? I mean the result for the Profit would be the same but Revenue would be underestimated.

  4. avatar says

    hi sir, thanks you for this great explanation. i just have a little problem, when we include the proposed dividend 5000 in income statement, we also need to include it in current liability in SOFP. but isnt this against IAs rule, (stating that we should not include proposed dividend)

    thank u for answering, :)

    • Profile photo of MikeLittle says

      @evanuom, Hi, I believe that the question specifies that the dividend HAS need declared / proposed BEFORE the year end and is therefore correctly accounted for as a liability.

      However, it’s a good point which you make and you need to watch out for this type of subtle nuance in exam questions

      • avatar says

        Hi Mike,
        What is this subtle difference?

        when should a proposed/declared dividend be accounted for as a liability and when not? Is there a difference between proposed and declared?

        Thank you

  5. avatar says

    hi sir, thanks you for this great explanation. i just have a little problem, when we include the proposed dividend 5000 in income statement, we also need to include it in current liability in SOFP. but isnt this against IAs rule, (stating that we should not include proposed dividend)

    thank u for anaswering, :)

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