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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..
First cancel the intra-group sale
Reduce consolidated revenue $12 million
Reduce consolidated cost of sales $12 millionNow 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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