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John Moffat.
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- July 23, 2024 at 4:55 pm #708797
Big Co acquired 60% of the share capital of Little Co on 1 September 20X6.
Extracts from their statements of profit or loss for the year ended 31 December 20X6 are shown below:
Big Co Little Co
$ ‘000 $ ‘000
Revenue 1,530 690
Cost of sales (620) (450)
Gross profit 910 240
Expenses (130) (60)
Profit before tax 780 180
Big Co paid $2.4 million for 60% of Little Co on 1 September 20X6. On the date of acquisition the non-controlling interest was valued at $1.6 million. Net assets of Little Co were valued at $3 million including retained earnings of $2 million.
Little Co sold goods to Big Co for $120,000 after they had become a subsidiary. Little Co had made a gross profit margin of 40% on these goods. Big Co still had half of them in inventory at the year end.Prepare Consolidated statement of profit or loss for year ended 31 December 20X6
sir my revenue and cost of sales are correct but gross profit is not. revenue = 1640, COS = 674
my solution for gross profit : 910 + (240 * 4/12) = 990
but the gross profit should be 966 (1640 – 674)
Now, it will be correct if I subtract PUP from gross profit but dont we only make changes to revenue and cost of sales and not gross profit. I am so confused and your help will be appreciated.July 24, 2024 at 9:01 am #708811We add the PUP to the cost of sales (which reduces the gross profit).
I do explain this (with an example) in my free lectures on consolidated accounts.
(The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well 🙂 )
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