BPP Qs. 26.9

The BPP answer is correct. You are right in saying that it was the subsidiary that had recorded the profit. So the consolidated retained earnings are all the retained earnings of Mercedes (450,000) plus their share (100%) of the retained earnings of Benz less the PURP (120,000 - 10,000). If you have not yet watched them, then do watch my free lectures on this. The lectures are a complete free course for Paper F3 and cover everything needed to be able to pass the exam well.

Hi John, I am hoping you will respond to this. My answer was D) 557, 500 To find the PUP, I did 25% of 50,000 which is 12,500. Maybe I am missing something but how did you arrive at $10,00 as PUP? Thanks in advance.

The question says that there is a 25% mark-up on cost. Therefore if the cost is $100 they add on $25 and sell for $125. For every $125 that Benz sells to Mercedes, the profit will have been $25. Benz sold the inventory to Mercedes at a price of $50,000. Therefore the profit included in the $50,000 is 25/125 x $50,000 = $10,000. I suggest that you watch my free lectures on mark-ups and margins. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.