- This topic has 3 replies, 2 voices, and was last updated 10 months ago by
Kim Smith.
Kim Smith.-
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caramellatte
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Hi I dont understand why to calculate revenue and cost of sales, we have to minus intragroup sales to calculate revenue and minus intragroup purchases to calculate cost of sales. Why is it different, but always in questions that I do the value of intra group sales and intragroup purchases will be the same amount. Also, I dont understand why we have to add provision of unrealised profit to cost of sales. Thanks for helping me.
Kim Smith
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I think you have posted this query to the wrong forum – perhaps you meant to post it here? https://opentuition.com/forum/ask-acca-tutor-forums/ask-the-tutor-acca-fa
caramellatte
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I could not post it there due to technical issues. So I posted it here. Could you help me answer the question?
Kim Smith
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I suggest you refer to FA notes Chapter 23 (s.4) and Chapter 24 (s.3) and watch the related lectures. From the GROUP perspective – a sale from a parent to a subsidiary (or vice versa) is to itself – it doesn’t earn revenue to the GROUP until it is sold on (externally/outside the group). Since consolidated FS are 100% of P + 100% of S – line-by-line – 100% of the amount of an “internal” sale = “internal” purchase and is therefore eliminated in full. This eliminates what would otherwise be “double-counting” of sales and purchases – but it still leave the profit – which is fine IF the goods have been sold (i.e. the profit has been realised to the group). But to the extent that goods have not been sold – i.e. are still in inventory – there must be a further adjustment for the so-called provision for unrealised profit (“PURP”).
caramellatte
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