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Hello there again
On 1 April 20X7 Possum Co acquired 60% of the share capital of Koala Co for $120,000. During the year Possum Co sold goods to Koala Co for $30,000, including a profit margin of 25%. 40% of these goods were still in inventory at the year end.
The following extract was taken from the financial statements of Possum Co and Koala Co at 31 March 20X8.Possum Co Koala Co
$’000 $’000
Revenue 750 400
cost of sales (420) (100)
Gross profit 330 300What is the consolidated gross profit of the Possum group at 31 March 2008?
The correct answer was 627000 but my answer was 687000
In my workings I removed the intra group sales of 30000 from revenue(possum) and cost of sales (koala)
Then I calculated the URP and got the figure as 3000..for URP I added it into the cost of sales of KoalaThen i simply adjusted the cost of sales and revenue according to the working above and that’s how I got the gross profit
But in the mark scheme it looks like they haven’t included the intra group sales of 30000 but have only deducted the URP
Please help me figure out why they haven’t deducted the intra group sales becuase I thought you usually deduct this figure from the parent and the subsudiary
Thank you
The question as you have typed it is only asking for the consolidated gross profit – not for the preparation of a consolidated SOPL.
If you were asked to prepare a full SOPL you would indeed subtract 30,000 from the total revenue and 30,000 from the total cost of sales. However doing this obviously has no affect on the final profit – only on the presentation, which is not required here.
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