- This topic has 3 replies, 2 voices, and was last updated 9 years ago by
.
- Posts
Hello Mr Moffat,
I have a question that I am struggling with.
AB Ltd purchased 60% of CD Ltd many years ago. During the year to 31 May 20X2 AB Ltd sold goods with an original cost of $84,000 to CD Ltd for $110,000. At 31 May 20X2 40% of these goods were included in inventory.
The inventory of AB Ltd at 31 May 20X2 was $610,000 and of CD Ltd was $240,000.
What is the value of inventory to be included in the Consolidated Statement of Financial Position at 31 May 20X2?
A 850,000 B 824,000 C 836,600 D 743,600
I watched the lectures on consolidations, done practice questions in my books etc but I haven’t come across any examples where it is just inventory, they show when the COS and the REVENUE need adjusting so this has me slightly stuck. I have put my guess workings below, can you please advise me what I am doing wrong?
AB stock 610k, CD stock 240k-110k= 130k.
130k x 40% (left in stock) = 52k
then
610k +130k-52k= 688K?Thanking you in advance, your advise will help me a great deal.
I think you should watch the lectures again because valuing the inventory in the Statement of financial position is certainly dealt with (and is very likely to be asked in the exam).
(Cost of sales and revenue do not appear in the Statement of financial position, only in the Statement of profit or loss which is not being asked for in this question)The inventory in CD bought from outside the group is 240,000 – (40% x 110,000) = 196,000.
The inventory in CD bought from AB (at cost) is 40% x 84,000 = 33,600So total inventory on the Consol SOFP is 196,000 + 33,600 = 229,600 + 610,000 = 839,600
(alternatively, the inventory in CD = 240,000 less the PURP of (40% x (110,000 – 84,000) = 10,400. 240,000 – 10,400 = 229,600 as before)
Thank you Sir for your explanation- I will go back and listen to the lectures.
I really appreciate your help.thanks again.
Mary
- You must be logged in to reply to this topic.