hello sir,what do we do in case where the company S has sold goods to company P cash and has made profit out of it, and company P has also sold them goods to the third company outside the group and has also made its own profit?Do we do any adjustments in this case?
No. Had there been no goods left in inventory we would simply remove the amount of the inter-group sales from the total of the groups sales and the total of the groups purchases, and the total group profit would not be affected. We are only removing the 1,200 because that is profit that had been recorded by S but had not been made by the group as a whole because the inventory has not been sold externally.
Sir, When we are calculating Retained earnings and NCI, PURP should be subtracted seperately after the post acquisition, isn’t it? Eg:- Calculating the NCI for ex7: FV of NCI 5000 Post acquisition (15000×25%) 3750 8750 Less: PURP (1200) 7550
In our campus they taught in this method. Also in the study text for ex., answers are in this method I’m totally confused, which is correct?? Please clear my doubt
Please,I want a clarification on this : policies are to make a full provision for unrealised inter-company profits, and to treat goodwill in accordance with IFRS
Sir, what do we do in case the fair value of NCI isn’t given and there is a case of goodwill. Suppose the subsidiary’s capital was 20,000 and the Parent purchases 60% of it for 20,000.
I have ,today, attempted the financial accounting exam paper and have succeed in it with 69%.
i wish to thank you for this, as it is all your lectures that have made it possible. i am trying the acca exams since a long time and have never been able to pass until i have come across all your fabulous lectures. In the past, i have used so many studytext and follow course with acca platinum providers but in vain. You have the art of making acca papers fully more comprehensive and easy than any other available study ways.
The date of incorporation is the date that the subsidiary was created. The parent company will either buy on that date or on a later date (depending on what is written in the question).
It is the PURP – the unrealised profit on goods that were sold from S to P that the question says are left in inventory, so that the inventory is valued at the cost to the group. I do explain this earlier in this lecture.
Hello sir, I have watched your lecture but I’ve got a question regarding the PURP: 1- If the seller is the parent so the PURP must be deducted from the Retain Earnings of the parent. 2- If the seller is the subsidiary then the PURP must be deducted from the Retain earnings of the Subsidiary and does not affect the retain earning of the parent. 3- The final adjustment is that we have to deduct the Inventory at cost: (Inventory less PURP) on consolidated SOFP. . Are the statements above are true and work for any Inter-Group Trading question??
Hi John,a doubt regarding the deduction of the unrealised profit in the consolidated statements.Since the goods are sold on credit between P and S why are we deducting unrealised profit when there was no exchange of any money against the goods between the two companies.It was mere change in the ownership of the goods.
Sales are recorded when the sale is made – not when the cash is received. If P sells to S then P will have recorded the sale in their own accounts and will therefore have recorded the profit. P has made the profit, but if any of the goods were not sold externally then the profit on them needs removing in the consolidated accounts.
thank you for all your lectures. I just have a question. If a company is a Group e.g Sunshine Group 篓PLC will the financial statements be prepared same as in these chapters of GROUP ACCOUNTS
The individual companies are not groups and prepare their own accounts in the normal way. If the companies are a group then they are required to also prepare group (or consolidated) accounts and this is explained in my free lectures on group accounts.
Mpho@21 says
hello sir,what do we do in case where the company S has sold goods to company P cash and has made profit out of it, and company P has also sold them goods to the third company outside the group and has also made its own profit?Do we do any adjustments in this case?
John Moffat says
No – if they ended up being sold outside the group then the whole profit has been made and no adjustment is needed.
vanchin says
For the unrealised profits of 1,200, shouldnt some share of it belong to the NCI?
L.Thenuka says
Dear John,
Shouldn’t we add $1,200 to the retained Earnings of ‘P’ too, because P would have included this as a Purchase and thus understating profit?
Thanks!
John Moffat says
No. Had there been no goods left in inventory we would simply remove the amount of the inter-group sales from the total of the groups sales and the total of the groups purchases, and the total group profit would not be affected. We are only removing the 1,200 because that is profit that had been recorded by S but had not been made by the group as a whole because the inventory has not been sold externally.
L.Thenuka says
Understood!
Thank You Very much. ?
John Moffat says
You are welcome 馃檪
MuhammedSaleem says
Also in the study text they are mentioning about some mandatory workings. actually do we need them?
John Moffat says
Workings are not looked at by anyone in this exam – the exam is all computer based and the computer just marks the answer!
MuhammedSaleem says
Sir,
When we are calculating Retained earnings and NCI, PURP should be subtracted seperately after the post acquisition, isn’t it?
Eg:- Calculating the NCI for ex7:
FV of NCI 5000
Post acquisition (15000×25%) 3750
8750
Less: PURP (1200)
7550
In our campus they taught in this method. Also in the study text for ex., answers are in this method
I’m totally confused, which is correct??
Please clear my doubt
John Moffat says
Questions like this should be asked in the Ask the Tutor Forum and not as a comment on a lecture!
MuhammedSaleem says
Sure i’ll drop this there
John Moffat says
Questions like this should be asked in the Ask the Tutor Forum and not as a comment on a lecture!
vandinidevi says
Can you please delete the comment ?
adikah says
Please,I want a clarification on this :
policies are to make a full provision for unrealised inter-company profits, and to treat
goodwill in accordance with IFRS
John Moffat says
Both are exactly as explained in the free lectures!
haziqahkasim says
Hello sir i wanna ask why we calculated the NCI as 25%/75% and why not simply just 25% from the $15000??
John Moffat says
$15,000 is the cost of only 75% of S’s shares. Therefore the value of the remaining 25% must be 25/75 x $15,000.
Asif110 says
Splendid well executed lecture, sir !
John Moffat says
Thank you for your comment 馃檪
sabya2k says
Sir, what do we do in case the fair value of NCI isn’t given and there is a case of goodwill. Suppose the subsidiary’s capital was 20,000 and the Parent purchases 60% of it for 20,000.
John Moffat says
In that case you assume the fair value of the NCI was 40% x 20,000/60%
axel.frederick says
Dear Mr Moffat,
I have ,today, attempted the financial accounting exam paper and have succeed in it with 69%.
i wish to thank you for this, as it is all your lectures that have made it possible. i am trying the acca exams since a long time and have never been able to pass until i have come across all your fabulous lectures. In the past, i have used so many studytext and follow course with acca platinum providers but in vain. You have the art of making acca papers fully more comprehensive and easy than any other available study ways.
Many thanks to you Sir,
your faithfully,
Axel Frederick
John Moffat says
That is great news – many congratulations 馃檪
And thank you very much for your comments.
sahersk says
Do we have Mid-year acquisitions in our syllabus?
John Moffat says
Yes, possibly.
beticopper says
what do you mean by bought on incorporation?would you please explain it a bit
John Moffat says
The date of incorporation is the date that the subsidiary was created. The parent company will either buy on that date or on a later date (depending on what is written in the question).
ubaidsardar1 says
Hello sir
why are we deducting 1200 profit from value of total inventory (13000+7000-1200). At 22:39 minutes.
Thank You .
John Moffat says
It is the PURP – the unrealised profit on goods that were sold from S to P that the question says are left in inventory, so that the inventory is valued at the cost to the group.
I do explain this earlier in this lecture.
rahmatbakhshi says
Hello sir, I have watched your lecture but I’ve got a question regarding the PURP: 1- If the seller is the parent so the PURP must be deducted from the Retain Earnings of the parent.
2- If the seller is the subsidiary then the PURP must be deducted from the Retain earnings of the Subsidiary and does not affect the retain earning of the parent.
3- The final adjustment is that we have to deduct the Inventory at cost: (Inventory less PURP) on consolidated SOFP. .
Are the statements above are true and work for any Inter-Group Trading question??
John Moffat says
1 & 2 are correct.
However to deal with the PURP in the SOPL, we add it to the cost of sales (which reduces the profit of the group).
Khaula says
Hi John,a doubt regarding the deduction of the unrealised profit in the consolidated statements.Since the goods are sold on credit between P and S why are we deducting unrealised profit when there was no exchange of any money against the goods between the two companies.It was mere change in the ownership of the goods.
John Moffat says
Sales are recorded when the sale is made – not when the cash is received. If P sells to S then P will have recorded the sale in their own accounts and will therefore have recorded the profit. P has made the profit, but if any of the goods were not sold externally then the profit on them needs removing in the consolidated accounts.
Nikoh says
Hello Sir.
thank you for all your lectures. I just have a question. If a company is a Group e.g Sunshine Group 篓PLC will the financial statements be prepared same as in these chapters of GROUP ACCOUNTS
I would really appreciate your response,
John Moffat says
The individual companies are not groups and prepare their own accounts in the normal way.
If the companies are a group then they are required to also prepare group (or consolidated) accounts and this is explained in my free lectures on group accounts.
harshin says
Hii John
If we are deducting the profit of transfering goods from the selling company ,why not it adding back to the profit of purchasing company?.
taurusrichkid says
How to deal with the current accounts if it appears in the question?
John Moffat says
It is explained in the next lecture!!
teshwar says
1. If the subsidiary sells goods the purp is deducted from retained earning at reporting date??
2. If the parent is the seller then the retained earning at acquisition is deducted from retained earning at reporting date?
John Moffat says
Neither statement is correct as you have typed them.
How we deal with the PURP is explained in detail in the lectures.
benmartin says
Thank you very much for your help… do you have any material on level 6 financial reporting theory and practice?
John Moffat says
Sorry but we only have material for the ACCA and CIMA qualifications.