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Hi John,
I have the following problem. Helsinki bought 75% of Stockolm at 30.06.20X6.
At 31.12.20X6, the figures in P&L were:
Helsinki Stockolm
Revenue 200.000 100.000
Cost of sales 110.000 50.000
Profit for the year 27.000 14.000During post aquisition, S sold goods to H. The goods originally cost 10 million and they were sold to H at a 25% mark-up. At 31.12.20×6, H still had 40% of these goods in inventory.
Calculate the consolidated P&L.
I calculated the PURP and it resultes to be 2500. The sales, the, were 12.500 (deductible from revenue & cost of sales).
The amount that remained in inventory was 1000 (40% of 2500).
But I don’t understand why the cost of sales is calculated as below (on solutions page).
110.000 + (6/12 * 50.000) – 12.500 + 51.000
And also I don’t understand why NCI share is calculated as below:
25% * (7000 – 1000) = 1500
Please help me with an answer.
Camelia
The answer to both of your problems is because H bought their share of S half way through the year.
So the post-acquisition sales (in total) of S are only half of 50,000. Also, the pst acquisition profit of S is only half of 14,000.
I hope that clears up your problem, but if not then please do ask again 🙂
John.
I still don’t get why is that the amount of 51.000 is added (and not 1000) and why the NCI is not calculated as 25% * 6000 – 25% * 1000.
Thank you,
Camelia
The cost of sales should be 110,000 + (6/12 x 50,000) – 12,500 + 1,000 = 123,500
(The 51,000 must be a typing mistake).The NCI is correct at 25% x (7,000 – 1,000).
25% is their share; 7,000 is the post-acquisition profit in S (50% x 14,000); the 1,000 is the PURP that needs removing from S’s profit because it is S who had sold the goods to H.
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