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Ruby owns 30% of Emerald and exercises significant influence over it. Emerald sold goods to Ruby for $160,000. Emerald applies a one third mark up on cost. Ruby still had 25% of these goods in inventory at the year end.
What amount should be deducted from consolidated retained earnings in respect of this transaction?According to me the answer should be 160000*33/133 *25%*30%
But the right answer in the BPP kit is $3000.How??“According to me the answer should be 160000*33/133 *25%*30%”
Have you tried to recalculate “160000*33/133 *25%*30%”?
That comes to $2,977.44 which is quite close to $3,000
The difference is because 33/133 is NOT the calculation for a mark up of one third on cost – one third does NOT equal 33%
If your calculation had included, instead of 33/133, the fraction 33.33333/133.33333 (or simpler still 1/4) then you would have arrived at $3,000
OK?
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