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  1. Hello sir

    I understand the mark up and margin. The URP. And it doesn’t matter. Who we deduct the inventory from

    But could you please clarify the retained earnings again. Still not fully 100%. Clear please

    Thank you very much

    • The question that gives the answer “In the seller’s books” is what you need to understand! “Which company has recognised the profit on the intra-group sale?” Now, is that profit actually realised so far as the group is concerned? NO! The profit is not achieved simply by transferring goods from one trouser pocket to another. So the adjustment to eliminate the profit must be in the records of the company that has recorded that profit – and that’s the selling company.

      Is that better?

  3. Hello Mike and anyone else able to help; on example 2 on p. 51 (Signe and Petras), it says the retained earnings for Signe is 0 as it’s not had time to make earnings yet. I understand this idea, but the accompanying balance sheet in the notes indicates retained earnings of $150 000 which I find confusing; how is the retained earnings zero but $150 000 on Signe’s books?

  4. Hello Mike and anyone else able to help; on example 2 on p. 51 (Signe and Petras), your workings indicate that the retained earnings for Signe is 0 as it’s not had time to make profits yet. I understand this idea, but the accompanying balance sheet in the notes indicates retained earnings of $150 000 which I find confusing; how is the retained earnings zero but $150 000 on Signe’s books?

    Many thanks in advance for your help!

    Monica

    • For working W2, Goodwill, Signe had achieved NO retained earnings because the acquisition was on the date of Signe’s incorporation. Some time later, as at the date when the consolidation is to be prepared, Signe has accumulated $150,000

      OK?

  5. sir, in the notes it is written that when an inventory is sold at a profit within the group, “we should calculate the unrealised profit included in inventory and note the adjustments to inventory and retained earnings on the face of the question paper. BOTH SIDES OF THE ADJUSTMENT should be must be made to the entity which has recognised this unrealised profit i:e the selling entity”

    my question is why BOTH sides of the adjustments should be made to the selling entiy?….the selling entity does no longer have that particular inventory in his books, so why we would reduce something which is not their at all in the first place….after the sale has occurred, the inventory will be in the buyers book, and the buyer is the one who would have overvalued his inventory, so should’nt we reduce the amount in the buyers account.?……….

  6. Mike, your lectures are fantastic. I was completing this course using only bpp textbooks up until now, and the F7 paper made me want to quit. Luckily I found this site and using your lectures it is really starting to make sense and now I will “always, only, ever” try and convince other students that they need to join this site. Thank you so much!!

  8. Hello, My question is : Why is it that when calculating the NCI Interest for the balance sheet, we use the figure for R.E. which has been adjusted for Intra – group pup? As the NCI is not part of the group will their share of the R.E. be the full amount (150 in this example as opposed to the 138). Just as we do not include them in any bargain purchases.

    Regards

  13. Mike,
    If i dont do an adjustment of PuP in the Consolidated R.E but I do it on the face of the question (adjusting calculated R.E with the PuP) I still balance the question except that I have slightly different figures for NCI and Retained earnings!!! would i still be awarded marks for such dealing??

  14. Mr. Little I am currently doing the goodwill mini exercises on pg189. Part (b) of Q#1 – the NCI valuation in the answer is $384,000. I worked out 30% of $1,200,000 (FV of NA at DOA) and got $360,000. Can you explain how you arrived at this figure please?

  15. No Doubt OT is Best !!! And the teacher like Mr.Mike are really Good!
    But the only thing is i can’t find the Lecture on Preparation of Company’s Financial Statements..! The reason being these are taught at f3 or what ? plz commet

    Thanks

  17. @Mikelittle

    Mr. Mike,

    With regards to W3, why is it that the pre acquisition profit for the sub is 0? Why do we not deduct the entire 138?

    I’m asking because above in W2, the FV of SNA@DOA, retained earnings were carried as 0, meaning that there were none @ DOA, so all RE would be Pre acquisition.

    Am I going about this right?

    In short, why is the 138 not deducted ftom the sub in W3?

  18. so if you reduce the value of the inventory, that would INCREASE the cost of sales and therefore reduce the profit

    Technically, the double entry will involve reducing the value of closing inventory both on the balance sheet and within the cost of sales. So Debit Cost of Sales 12,000 in the Statement of Income and Credit Closing Inventory on the Balance Sheet.

    The first part of the entry reduces profits ( because costs have increased ) and the second part balances the fall in profits by reducing the assets on the balance sheet

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