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Cost of sales question

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cost of sales question

  • This topic has 1 reply, 2 voices, and was last updated 8 years ago by MikeLittle.
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  • November 18, 2016 at 11:04 am #349788
    happyeun92
    Member
    • Topics: 5
    • Replies: 3
    • ☆

    Hello mike! I am now currently going through revisions after watching your lectures 🙂

    I just came up with a question, can you help me please?

    The question is, Hillusion acquired 80% of Skeptik on 1 july 2012. In the post ac period H sold goods to S at a price of $12m. These goods had cost H $9m. During the year to 30 Mar 2013 S had sold 10m of these goods for 15million.

    How will this affect group cost of sales in the CSP/L of Hillusion for the Y/E 31 mar 2013?

    The answer is Decrease by 11.5m and I dont really get it..

    Well, inter entitiy transaction should be deducted from revenue and added to cost of sales? Then it must be certain increased figures ..!? I dont get it from the first step..

    November 18, 2016 at 2:19 pm #349806
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23323
    • ☆☆☆☆☆

    First cancel the intra-group sale

    Reduce consolidated revenue $12 million
    Reduce consolidated cost of sales $12 million

    Now account for the unrealised profits

    1/6th of the goods transferred still remain in inventory (that’s $2 million out of the $12 million transferred)

    When the transfer was made by H to S, the profit element of the transfer value was $12 million – $9 million = $3 million

    And 1/6th of that is attributable to the closing inventory of those intra-group traded goods

    So 1/6th x $3 million = $500,000 and that needs to ADD to cost of sales

    We’ve just reduced cost of sales at the top of this post by $12 million and now we’re increasing it by $500,000

    That’s a net decrease of $11,500,000

    If you follow my lectures and / or my revision lectures, you would have seen this in action!

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  • The topic ‘Cost of sales question’ is closed to new replies.

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