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- June 9, 2021 at 10:28 am #624122
Platt Co has owned 60% of the issued equity share capital of Serpi Co for many years. At 31 October 20X7, the individual statements of financial position included the following:
Platt Co ($) CA – 700,000 CL – 300000
Serpi Co ($) CA 500,000 CL 200,000Neither company had a bank overdraft at 31 October 20X7.
During the year ended 31 October 20X7, Platt Co made $100,000 sales on credit to Serpi Co. Serpi Co had one-quarter of these goods in inventory at 31 October 20X7. Platt Co makes a 20% gross profit margin on all sales.
On 31 October 20X7, Serpi Co sent a cheque for $50,000 to pay all of the outstanding balance due to Platt Co. Platt Co did not receive this cheque until 2 November 20X7.
Platt Co’s policy for in-transit items is to adjust for them in the parent company.
In respect of current assets and current liabilities, what amounts will be reported in Platt Co’s consolidated statement of financial position at 31 October 20X7?Answer – Current Assets $1.195m and current liabilities $0,5m
I’ve understood the unrealized profit part but I’m not getting why cash in transit of 50000 is not subtracted from current liabilities. Shouldn’t the consolidated current liabilities then be 0.45 m ?
June 9, 2021 at 9:55 pm #624308The key is in the words “to pay all of the outstanding balance due”. If that is the case then once the CIT has been adjusted then there is no outstanding intra-group balances and so there is nothing to eliminate.
Thanks
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