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Pluto has acquired 70% of ordinary shares in Saturn on July 1 20X6.
Companies have the following cost of sales figures for the year ended 31 December 20X6:
Pluto -$1,500,000,
Saturn – $1,200,000.
During the year Pluto has sold inventories totalling $700,000 to Saturn with 40% mark-up on cost.
Half of products sold to Saturn were still not sold to external customers as at reporting date.
What is the correct consolidated cost of sales figure of Pluto group for the year ended 31 December 2016?
Can you help with the solution please
You must have an answer to the question in the same book in which you found the question. So in future please ask about whatever it is in the answer that you are not clear about!
You take all of Pluto’s costs of sales, and add on 50% of Saturn’s cost of sales (because Saturn was purchased half way through the year.
You then subtract from both sales and from cost of sales, 50% x ($700,000 + 40%). (The selling price from P to S of goods sold since acquisition).Finally, you add to the cost of sales the PURP, which is 40% x $700,000 x 50% x 50% (because half of the goods sold were still in Saturn’s inventory).
The treatment and calculation of the PURP is covered in detail in my free lectures. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.
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