Hi sir or any friend,
Parket Co acquired 60% of Suket Co on 1 January 20X7. The following extract has been taken from the individual statements of profit or loss for the year ended 31 March 20X7:
Parket Co ($) Suket Co($)
Cost of sales 710,000 480,000
Parket Co consistently made sales of $20,000 per month to Suket Co throughout the year. At the year end, Suket Co held $20,000 of this in inventory. Parket Co made a mark-up on cost of 25% on all sales to Suket Co.
What is Parket Co's consolidated cost of sales for the year ended 31 March 20X7 (to the nearest whole $)?
answer: 710,000 + (480,000 x 3/12) - (20,000 x 3) + (20,000 x 25/125) = $774,000
My ques: why minus (20,000 x 3), should minus the inventory amount $20000 only right? bcs $20000 only held in inventory..pls correct me if im wrong..Thank you.
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consolidation sofp
4y ago#1Hi,
The intra-group sales are $20,000 per month and we have controlled the subsidiary for three months since the acquisition date (Jan to March), hence why it has been multiplied by the 3.
Thanks
Hi Sir, how about the $20000 inventory ? why they did not deduct
4y ago#3Hi,
We adjust for the profit on the inventory still held and not the full value of the inventory. You can see them adjusting for the unrealised profit in the (20,000 x 25/125) element of the calculation.
Thanks
Hi I dont understand why you multiply 20.000 x 25/125 and not 25/100 as it says 25%
3y ago#5Hi,
Because it is a 25% mark up and not a 25% gross profit margin. You need to know how to calculate profit figures based upon mark ups and margins, which you will have seen in previous papers.
Thanks
Why do we add back the 4000? I assumed as its profit made on the sale it would be reduced?
1y ago#7Hi,
It is being removed from cost of sales (an expense in profit or loss), so we add back the profit to the expense to remove it.
Remember that the removal is a debit entry too.
Thanks
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