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Sales between associates and parent in a group accounts situation is not adjusted, as would be the case between a parent and a subsidiary. The group inventory however will need adjusting, hence answer C.
Normally sales between subs and parent get adjusted for sales, cost of sales, PURP and inventory (if items remain in inventory). For the parent and associate scenario the sales figure, purp and cost of sales normally would not be affected as an associate is considered to be outside of the group. Inventory however is always adjusted.
The correct answer is $657 as the dishonoured cheque for $92 need to be added to the cash book overdrawn balance of $565. As that cheque was recorded in the cash book before being sent to the bank it effectively reduced the overdaraft to the $565 currently showing, now that you will not be geting those funds from the customer (in the short run at least) the bank balance in the company’s book needs to reflect this.
