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Hi, please assist with questions below:
Chapter 24, example 2 – Please explain why goodwill impairment is not taken into calculation in solution given.
Also, cost of sales sum seems to be wrong in answer (1.403 instead of 1.700), please confirm this is an error?Chapter 24, example 3 – please break down and explain in detail PUP calculation in Group SPL.
Much appreciated!
Hi,
Thanks for reposting. Yes you’re correct about the points in example 2.
The cost of sales figure should be 1,700, which then makes the gross profit 585.
The impairment of 20 needs to be added in full to the administrative expenses, so will give 135. It is not pro-rated as the impairment is done at the reporting date and therefore arises at that point, it has not accrued over the year so not necessary to pro-rate. Don’t forget then that the NCI will get their share of the impairment too as the NCI is measured at fair value.
For the PUP in example 3 then we need to adjust for one quarter of the profit that has been made on the sale of the goods between Nick and Gary, as that is the amount of goods remaining within the group at the reporting date. To work out the profit we will need to use cost structures for a 25% mark-up as follows
Sales 10,000 125%
Costs (8,000) 100%
Profit 2,000 25%The profit will be 25/125 x 10,000, which we then take a quarter of to give the 500.
Hope that helps.
Thanks
Chris
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