- This topic has 5 replies, 4 voices, and was last updated 2 years ago by
.
- Posts
Hello professor.
26.11
On 1 April 20X7 Possum Co acquired 60% of the share capital of Koala Co for $120,000. During the
year Possum Co sold goods to Koala Co for $30,000, including a profit margin of 25%. 40% of these
goods were still in inventory at the year end.
The following extract was taken from the financial statements of Possum Co and Koala Co at 31 March
20X8.
Possum Co Koala Co
$’000 $’000
Revenue 750 400
Cost of sales (420) (100)
Gross profit 330 300
What is the consolidated gross profit of the Possum group at 31 March 20X8?Unrealised profit (30,000 x25% x 40%) =3000
Gross profit (330 + 300 – 3)=627i did not understand why we did not do any unrealised profit or group intra sales adjutments on the group revenue, group cost of sales. Calculation is only belongd to gross profit. Why?
Sales and cost of sales are both reduced by the total sales from Possum to Koala, but this does not affect the gross profit (because the same amount is subtracted from both).
All that affects the gross profit is the profit in the goods still held in inventory.
Do watch my free lectures on this, because I do explain (with examples) exactly what happens, and why.
Why we don’t subtract the intra group sales?
shouldn’t it be like this, 750+400-30=1120
cost of sales , 420+100+3=523
——————————————-
gross profit = 597
can you explain sir?Possum’s sales include 30,000 sold to Koala.
If Possum charged Koala with 30,000 then Koala had to pay 30,000 and so 30,000 is included in Koala’s cost of sales.
Given that we only want to show purchases and sales outside the group, 30,000 needs subtracting from both the total sales and the total cost of sales of the two companies.
Given this information:
Consideration transfered 21,000
Fair value of NCI 11,800
Retained earnings 2,000
Share Capital 30,000
Good will 800I was asked share of post acquisition Retained earnings.
I used 37.5% from 21,000/33,600(21,000+11,800+800).But the book is used 30% I wonder why?
So professor please help me with that.
- You must be logged in to reply to this topic.