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if there is a transaction between group companies you said that we reduce the revenue and cost of sales of that transaction. and for PUP we increase the cost of sales.
hope i understood this correctly?
in BPP revision kit question 235 Basil the parent co sold $46,000 og good to Parsley and basil had a markup of 30% on sales. 25% of good were still in inventory at year end.
In the answer revenue and cost of sales was not adjusted for $46,000 at all but only adjustment made was 25% on 30% of $46,000
i csnt seem to understand why 25% was taken on the markup only ($46,000*30/130) * 25% and not the cost of sales ($46,000/130*100) *25%
and why was the $46,000 not adjusted in both revnue and cost of sales.
Hi yes I am stuck with this question now too.
Can anyone help?
I thought we had to remove the 46000 from revenue and cost of sales and add back purp to cost of salesIn the answer, they have taken GROSS PROFIT figures of Basil and Parsley and then made an adjustment for unrealised profit.
The answer would have been same if they took sales first, removed intra-group sales, then adjusted cost of sales for intra-group purchases and unrealised profit.
The amount $46,000 is sale price, meaning profit is included in it.
Group revenue = 955,000+(421,500*10/12) – 46,000 = 1,260,250
Group COS = 407,300 + (214,600*10/12) – 46,000 + (25%*46,000*30/130) = (542,787)
Group gross profit = 717,463I hope it helps.
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