COLVIN CO (SEP/DEC 20)

As far as the cash flows in Canvia are concerned, the gearing system component is a cash outflow. However since the question says that the cost has already been included in the pre-tax contribution estimates, there is no extra flow to consider. As far as the cash flows to Colvin are concerned, Colvin will be receiving the remittances from Canvia and will also be getting the contribution from the gearing system components that they are selling to Canvia.

Good day sir, for Colvin question on the special packaging profit we have included the profit (€10-€2)=€8 in home country. Whereas in this question we don't have to add additional outflow for foreign company as in the question has mentioned it has been included in the pre-tax contribution estimates. My doubt is that if the question didn't mentioned it was included in pre-tax contribution estimates, then we will include €10 as their outflow expenditure right sir? For inter-company transaction = for home country is based on the profit earned ; for foreign country is based on the overall purchase price from home country. Right sir?

What you have written is correct.

Thank you sir :)

You are welcome :-)