If it’s the parent that has sold the goods & has made an unrealized profit of $2,000, Would this be deducted from the Share of profit Attributable to Shareholders of P ? (i.e. 54,700-2,000)
Sir, I have 2 doubts… (1) If the left inventory is 7000 and PURP 2000, what will happen to the cost 5000? where should we record that? (2) Don’t they ask to do Consolidated SOPL and SOFP together in exams?
1. The cost of the goods that P bought from S is recorded in P’s purchases and S’s sales. The inventory remaining with P at the end of the year will appear in P’s own accounts at cost (in the same way as inventory is always recorded in individual company’s accounts).When we consolidate we need to remove the PURP in that inventory but there are no extra entries in the books because there is no ‘consolidated company’ – it is not a separate company.
2. You will be tested on both the consolidated SOPL and the SOFP, but certainly not in the same question. And you are not asked to write out an entires SOFP or SOPL – it is a computer based exam and you are filling in the blanks (you will find plenty of exam type questions in your Revision Kit. Everything needed for the exam is covered in my lectures on the consolidated SOPL and the consolidated SOFP.
My question is from the Bpp Revision kit for September 2022-31 August 2023 exams on the 3rd Mock Exam Question 37 (d)
I am really confused how the got the percentage of the shares 40%held in the subsidiary and the apportion between pre and post acquisition which is 9/12 cause the question doesn’t state that.
In future you must ask this kind of question in the Ask the Tutor Forum, and not as a comment on a lecture.
This part of the BPP test answer is nonsense, because there is no information given about Sapphire in the question!! Have you looked on their website at the errata sheet? I am not able to access it but you should one able to and it might give more information 🙂
We are recording as though it is one big company and so sales and purchases within the group would be like recording sales to itself. We only show the sales and purchases outside the group.
Sir, if Parent sold to sub, we deduct the amount of 2000 from cost of sales and do we also deduct 2000 from the 54,700 (the profit attributable to parent) ?
Sir please when finding the profit attributable to the non-controlling interest, do we always have to subtract PURP from the profit of the *subsidiary if it was the one receiving the goods. I am asking this because in the acca specimen exam, they didn’t do that. It was just 80(400*20%)
Okay now i understand that you only deduct the PURP from the profit of the subsidiary if it is the one selling the goods so if the Parent is the one selling the goods, would you subtract PURP from the balancing figure of the shareholders of P?
One would have taught since S sold 3 /4 th of the goods, which is ¾ x 28000 (21000). Then what should be removed from the revenue should have been the unsold goods of 7000 while cost of sales should be reduced by (7000 – 2000:purp ) = 5000. E.g. Revenue (120000 + 110000 – 7000) 223,000 Cost of sales (55000 + 50000 – 7000 + 2000) 100,000 Gross profit 123,000
Though the same gross profit but if the question is what is the consolidated revenue and cost of sales, these would differ.
The revenue and cost of sales are both reduced by the full amount of the intergroup sales (not just those left in inventory). They should both only show the purchases and sales from outside the group.
Sir, if we deduct the 28,000 from both Revenue and COGS, why is it necessary to create a PURP if those transactions (and therefore the accompanying profit) are not accounted for ?
Because the 28,000 is the selling price from one company to the other, and not the original cost. Therefore the profits of the selling company include profit on the whole of the 28,000. Given that not all of those sales were sold outside the group, the PURP needs removing from the profit.
Sir, if we remove the entire amount of intra-entity sales are we not thereby also removing any accompanying profit by definition (profit being broadly revenue minus COGS and expenses)? Is that entire transaction not removed from the records for the Consolidated SoPL?
No – we are not removing the accompanying profit at all!
Removing the 28,000 from group purchases and group sales does not affect the total group profit at all. Doing that is just making sure we only show the total purchases and sales externally.
The 28,000 is included in the sales of the company that sold the goods. That company is recording a profit on all of their sales. If some of the goods did not end up being sold externally, then the group cannot include all of that profit. Therefore the profit of the group must be reduced by the PURP (and we achieve that by adding it to the group’s cost of sales).
Hello Sir, So in the case where parent sells goods to subsidiary, in SOPL, we will reduce profits of P by PURP, same like in the lecture you’re reducing the Non controlling interest? So if the question was other way around it would be:
Atributable to: P: (70000-16200) – 2000 NCI: 45% x 36000 = 16200 Total profit: 70000
basiek465says
And with that it will also change the movement on retained earning, where profit for the year will also be reduced by PURP?
L.Thenuka says
Dear John,
If it’s the parent that has sold the goods & has made an unrealized profit of $2,000, Would this be deducted from the Share of profit Attributable to Shareholders of P ? (i.e. 54,700-2,000)
MuhammedSaleem says
Sir, I have 2 doubts…
(1) If the left inventory is 7000 and PURP 2000, what will happen to the cost 5000? where should we record that?
(2) Don’t they ask to do Consolidated SOPL and SOFP together in exams?
John Moffat says
1. The cost of the goods that P bought from S is recorded in P’s purchases and S’s sales. The inventory remaining with P at the end of the year will appear in P’s own accounts at cost (in the same way as inventory is always recorded in individual company’s accounts).When we consolidate we need to remove the PURP in that inventory but there are no extra entries in the books because there is no ‘consolidated company’ – it is not a separate company.
2. You will be tested on both the consolidated SOPL and the SOFP, but certainly not in the same question. And you are not asked to write out an entires SOFP or SOPL – it is a computer based exam and you are filling in the blanks (you will find plenty of exam type questions in your Revision Kit. Everything needed for the exam is covered in my lectures on the consolidated SOPL and the consolidated SOFP.
Mulalu says
My question is from the Bpp Revision kit for September 2022-31 August 2023 exams on the 3rd Mock Exam Question 37 (d)
I am really confused how the got the percentage of the shares 40%held in the subsidiary and the apportion between pre and post acquisition which is 9/12 cause the question doesn’t state that.
Thank you
John Moffat says
In future you must ask this kind of question in the Ask the Tutor Forum, and not as a comment on a lecture.
This part of the BPP test answer is nonsense, because there is no information given about Sapphire in the question!! Have you looked on their website at the errata sheet? I am not able to access it but you should one able to and it might give more information 🙂
Asif110 says
Sir, why cannot the sales and cost of sales of realized profit be recorded although their profits alone can ? I understand for unrealized profits.
John Moffat says
We are recording as though it is one big company and so sales and purchases within the group would be like recording sales to itself. We only show the sales and purchases outside the group.
Asif110 says
Thankyou very much for your High Quality A* lecture series.
John Moffat says
Thank you for your comment 🙂
sabya2k says
Sir, if Parent sold to sub, we deduct the amount of 2000 from cost of sales and do we also deduct 2000 from the 54,700 (the profit attributable to parent) ?
asabea says
Sir please when finding the profit attributable to the non-controlling interest, do we always have to subtract PURP from the profit of the *subsidiary if it was the one receiving the goods. I am asking this because in the acca specimen exam, they didn’t do that. It was just 80(400*20%)
John Moffat says
The PURP is subtracted from the profit of the company that sold the goods to the other company – not the company that received them.
asabea says
Okay now i understand that you only deduct the PURP from the profit of the subsidiary if it is the one selling the goods so if the Parent is the one selling the goods, would you subtract PURP from the balancing figure of the shareholders of P?
anoshb141 says
SIR does we have to account for “dividends income from S” and loan notes adjustments in consolidated SOFP & SOPL, for this paper (FA)?
amiirs says
Hi sir.. what’s the logic behind reducing the gross profit by increasing the cost of sales by 2,000 instead of decreasing revenue by 2,000? Thanks!
kunleolley says
One would have taught since S sold 3 /4 th of the goods, which is ¾ x 28000 (21000). Then what should be removed from the revenue should have been the unsold goods of 7000 while cost of sales should be reduced by (7000 – 2000:purp ) = 5000. E.g.
Revenue (120000 + 110000 – 7000) 223,000
Cost of sales (55000 + 50000 – 7000 + 2000) 100,000
Gross profit 123,000
Though the same gross profit but if the question is what is the consolidated revenue and cost of sales, these would differ.
John Moffat says
The revenue and cost of sales are both reduced by the full amount of the intergroup sales (not just those left in inventory). They should both only show the purchases and sales from outside the group.
This is all explained in the free lectures.
haddock says
Sir, if we deduct the 28,000 from both Revenue and COGS, why is it necessary to create a PURP if those transactions (and therefore the accompanying profit) are not accounted for ?
John Moffat says
Because the 28,000 is the selling price from one company to the other, and not the original cost. Therefore the profits of the selling company include profit on the whole of the 28,000. Given that not all of those sales were sold outside the group, the PURP needs removing from the profit.
haddock says
Sir, if we remove the entire amount of intra-entity sales are we not thereby also removing any accompanying profit by definition (profit being broadly revenue minus COGS and expenses)? Is that entire transaction not removed from the records for the Consolidated SoPL?
John Moffat says
No – we are not removing the accompanying profit at all!
Removing the 28,000 from group purchases and group sales does not affect the total group profit at all. Doing that is just making sure we only show the total purchases and sales externally.
The 28,000 is included in the sales of the company that sold the goods. That company is recording a profit on all of their sales. If some of the goods did not end up being sold externally, then the group cannot include all of that profit.
Therefore the profit of the group must be reduced by the PURP (and we achieve that by adding it to the group’s cost of sales).
levanrich says
Good Day,
The 28000 is deducted from Revenue and COGS whether or not the buyer has sold all of it?
John Moffat says
Yes, all is deducted because they were not sales or purchases to/from outside the group.
hm86hakim says
sir why cost of sale deduct by 28000 not at 20000?
John Moffat says
S sold goods to P for $28,000. Therefore the cost to P was $28,000, and P will there have included $28,000 in cost of sales in their own accounts.
milan99 says
Hi Sir,
But what if the parent sell the goods to subsidiary?
John Moffat says
As I say in the previous lectures – you subtract the PURP from the retained earnings of the company that sold the goods to the other company.
basiek465 says
Hello Sir,
So in the case where parent sells goods to subsidiary, in SOPL, we will reduce profits of P by PURP, same like in the lecture you’re reducing the Non controlling interest?
So if the question was other way around it would be:
Atributable to:
P: (70000-16200) – 2000
NCI: 45% x 36000 = 16200
Total profit: 70000
basiek465 says
And with that it will also change the movement on retained earning, where profit for the year will also be reduced by PURP?