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BPP KIT
25.2 Black and Bury
During the year ended 31 October, 20X5 Black sold goods which originally cost $12 million to Bury.
Black invoiced Bury at cost plus 40%. Bury still has 30% of these goods in inventory at 31 October 20X5.12000*40/140 = 3428.5 *0.30 = 1028.5
cost-plus 40% it means 100+40 = 140%
answer is The unrealised profit is $1,440,000 (12m × 40% × 30%)
Another question. 25.3
During the year Prestend sold goods with an invoice value of $240,000 to Northon. These goods were invoiced at cost plus 20%. Half of the goods are still in Northon’s inventory at the year-end.
240,000*20/120 = 40,000 * 0.50 = 20,000
what are the differences between these two questions?
In 25.2 The amount invoice to Bury was cost plus 40%, so the unrealised profit is 40% of the cost.
In 25.4 The amount invoiced to Northon was $240,000, which must therefore include the profit. For every 100 cost the profit is 20 and therefore the invoice amount is 120. So the unrealised profit is 20/120 of the invoice amount.
If you are still unsure then watch my free lectures on mark-ups and margins. The lectures are a complete free course for Paper FA and cover everything needed to be able to pass the exam well.
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