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Basil acquired 60% of Parsley on 1 March 20X9. In September 20X9 Basil sold $46,000 worth of goods to Parsley. Basil applies a 30% mark-up to all its sales. 25% of these goods were still held in inventory by Parsley at the end of the year.
An extract from the draft statements of profit or loss of Basil and Parsley at 31 December 20X9 is:
Basil Parsley
Revenue 955,000 421,500
Cost of sales (407,300) (214,600)
Gross profit 547,700 206,900All revenue and costs arise evenly throughout the year.
What will be shown as gross profit in the consolidated statement of profit or loss of Basil for the year ended 31 December 20X9?The answer is:
Basil 547,700
Parsley (206,900 × 10/12) 172,417
PURP ((46,000 × 30 / 130) × 25%) (2,654)
=717,463My question is why there is no adjustment for intra group sales, which should be deducted ($46000) from group revenue and group COS.
Hi,
The intra-group sales adjustment will not impact the overall level of profitability, hence they’ve ignored it. If you were to reduce the sales and costs by the above amount of intra-group sales then you should come to the same answer.
Thanks
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