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Hi Mr Moffat. I just went thru the video lectures of consolidated statement of financial position and profit and loss. I didn’t get the quiz correctly in chapter 24. Kindly explain why the answer is so in the following questions :
P acquired 75% of s two years ago. For the yr ended 31st Dec 20×8, s reported a profit for the year of $10000. How much of s’s profit will be included in p’s consolidated statement of profit and loss and retained earnings? – I didn’t even know how to start here because I felt retained earnings shuld have been provided first. …
2. P acquired 80% of s on 1st September 20×6. S reported a profit of $15000 for the year to 31st December 20×8. Assume that profit accrues evenly during the year, how much of s’s profit will be included in p’s consolidated statement of profit and loss? – I started with 80% of 15000 and got lost . .
3. p owns 100% of s. During the yr p sold to s for $120000 generating a margin of 25%. 40% of these goods had been sold by s at the end of the year. What adjustment should be made in p’s consolidated financial statements for unrealised profit? – Here i noticed they used 60% of what was remaining in inventory and left the 40%. Is it because it has been sold already? Pls sir explain these to me…1. The question says that S has made a profit this year of $10,000 and is asking how much of this $10,000 will appear in the consolidated profit or loss and retained earnings. It is not asking what the total figure for retained earnings will be – for that we would need to know about P’s profit and retained earnings as well!
2. In the consolidated statement we bring in all of S’s profit – not 80% (and show separately later how much is attributable to the minority interest and how much is attributable to P). As the answer makes clear, since P has only owned shares in S for 4. months, we only bring in 4 months of the profit.
3. The provision for unrealised profit is always the profit in goods still in inventory. Given that they have not yet been sold externally, the group cannot include in their profits the profit that P had recorded when they sold the inventory to S.
I do suggest that you watch the lectures again, because all of these points are explained in the lectures.
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