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In the exam paper on June 2006 in the question about consolidation the URP should be calculated:
“…Systan had made a consistent profit of 5% of the selling price. … 4 mln in inventory..”The examiner’s calculation in the answer is: 4 mln x 5% = 200 000
Why is not the calculation: 4 mln x 5%/105% = 190 000
Thank you in advance
4 Million is in inventory, which means that is the price the buyer paid for, the selling price, and the question clearly says 5% of the selling price 🙂
If the question said something like “Systan has a 5% markup on the goods it sells” then your calculation would have been correct
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