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February 25, 2020 at 11:37 pm
SIR does we have to account for “dividends income from S” and loan notes adjustments in consolidated SOFP & SOPL, for this paper (FA)?
November 20, 2019 at 6:05 pm
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!
March 23, 2019 at 5:30 am
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
March 23, 2019 at 10:04 am
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.
December 18, 2018 at 11:11 am
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 ?
December 18, 2018 at 2:57 pm
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.
December 19, 2018 at 1:57 pm
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?
December 19, 2018 at 2:26 pm
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).
September 22, 2018 at 8:46 am
The 28000 is deducted from Revenue and COGS whether or not the buyer has sold all of it?
September 22, 2018 at 3:13 pm
Yes, all is deducted because they were not sales or purchases to/from outside the group.
August 11, 2018 at 10:37 am
sir why cost of sale deduct by 28000 not at 20000?
August 11, 2018 at 2:24 pm
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.
August 7, 2018 at 9:07 am
But what if the parent sell the goods to subsidiary?
August 7, 2018 at 11:25 am
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.
June 25, 2019 at 7:55 pm
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
June 25, 2019 at 8:29 pm
And with that it will also change the movement on retained earning, where profit for the year will also be reduced by PURP?
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