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T bought 80% interest in W 9 months ago. During the post acq’n period, T sold goods to W for 12,000. The goods originally cost 9,000. During the the remaining months of the year, W sold 10,000 (at cost to W) of these goods to third parties for 13,000.
How do I calculate provision for unrealised profit from this example?
Please tell me from which sitting (which year) this question is from so that I can advise you.
There’s a profit on the sale by T to W of 3,000 (12,000 – 9,000)
W has sold 10,000 out of 12,000. There is in inventory just 2,000 left ie 1/6 of the goods from T
If the profit on the sale was 3,000 and there’s still 1/6 left in inventory, then the pup is 1/6 x 3,000 = 500
The adjustment for 500 is against the retained earnings of T – even though it is W’s inventory that is over valued, the adjustment is against the retained earnings of the company that has RECOGNISED the profit and that’s the selling company
Gabriel, thank you for your kind offer of assistance. However, Trini’s question is specifically posted on the “Ask the tutor” page. Had it been on the general forum page, your input would have been most welcome ….. but it wasn’t
May I therefore respectfully ask that you restrict your help messages to the general forum
Many thanks
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