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Hi sir,
Hope you’re doing well.
My doubt is regarding question number 25.2&25.3 practice and revision kit(2091-2020)
In question 25.2 for unrealised profit they have calculated it as follows
12mX40%X30% Since in the question it’s being said that 40% at cost shouldn’t it be (12mX40/140X30%) and In question 25.3 task 2 for unrealised profit they have done it right
So,is it a printing error or I’m missing out on something.
One more doubt in question 25.3 task 4 group share of northern is (70%x140)
Is it because prestend purchased 2,800,000shares so 2800/9000X100 to find the percentage the parent company acquired?
Kindly,explain.For 25.2, the answer in the book is correct.
In Bury’s SOFP the inventory will appear at cost to Bury, which is the amount that Black will have invoiced them. Black is will have charged Bury at cost + 40% and so the inventory remaining will include Black’s profit on them which is 40/140 of the amount that Black charged.
For 25.3,
From Northon’s SOFP, Norton has 4,000 shares in issue. Note (a) of the question says that Pretend had bought 2,800 shares in Northon. Therefore Prestend owns 2,800 / 4,000 = 70%.
In question 25.2 they haven’t included blacks profit as they have simply done 12mX40%X30% in the book ?
I’m still a bit confused if it is
12mX40%X30% OR 12mX40/140X30%?
Thank you, so much for your patience.Sorry – my mistake. I answered too quickly 🙂
In Bury’s SOFP the inventory will appear at cost to Bury, which is the amount that Black will have invoiced them. Note 2 of the question says that the goods originally cost $12M and that they invoice Bury at cost plus 40%.
Therefore the unrealised profit will indeed be 40% x $12 x 30%
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