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Hi Mike,
Needed your help
Included in revenue is $12m for receipts that the company’s auditors have advised are commission sales. The cost of these sales, paid for by Petra, were $8m. $3m of the profit $4m was attributable to and remitted to Sharma ( the auditors have advised that Sharma is the principal for these transactions). Both the $8m and $3m have been included in cost of sales.
Is the answer are
Dr sales $12m
Cr cost of sales $11m
Commission accrued $1mYes, sales on commission are actually sales as an agent on behalf of the principal.these were never your goods – they always belonged to the principal.
So we need to get them out of sales and out of cost of sales.
The only “revenue” that we should acknowledge is the commission income and that should be sown separately within the statement of income (and not included within “revenue”)
So you are correct. We need to Dr Revenue 12m, Cr Cost of sales 11m, and Cr Commission income 1m
Thank you very much Mike,
You really help me a lot.I got another question,
June 2012
Immediately after the acquisition, square(subsidiary) issued $4m of 11% loan notes, $2.5m of which were bought by pyramid(parent). All interest due on the loan notes as at 31march 2012 has been paid and received.
We need to eliminate the interest? As is sub gave to parent.Is this an income statement question or a financial position question?
If it’s a statement of income question, then we need to cancel $275,000 of the finance cost shown in the subsidiary against the same amount included by the parent in finance income
If it’s a statement of financial position question, we need to cancel $2,500,000 investment in the parent against $2,500,000 of the $4,000,000 long term liability shown in the subsidiary
Ok?
Okay!
But we need to do any adjustment for pre-acquisition profit and post-acquisition profit for subsidiary, if the date on acquisition is the half way of the year ended( example date of acquisition is 1 April 2009 and year ended is 30 September 2009).No! You may be thinking that the loan was issued on 1 April so the loan interest should be allocated to just the post-acquisition period.
Without the question in front of me, I seem to remember that the parent bought the interest bearing loan from “other people” that is, it already existed and was not a new issue.
If my memory is correct, then time apportionment is not relevant.
If it were a new issue, then, yes, we would need to allocate the loan interest to the post-acquisition period.
The other element of time apportionment is, of course, the fact that the parent is only going to receive 6 months’ worth of loan interest so the figures I quoted in my last post need to be halved
Ok?
Hi, mike
I got one question to ask you about yesterday F7 exam.
Our revenue included agent sale of $20m, we are given 10% commission and we remitted $15 charged to our cost of sale.
Is the answer is
Dr sale $20m
Cr cost of sale $15m
Commission $2m
Payable $3mThat sounds good to me – obviously I’d like to see the question but the entries you have suggested appear to correct the wrong entries
As you yourself have posted:-
Dr sale $20m
Cr cost of sale $15m
Commission $2m
Payable $3mHI,I want to ask question about Petra
Why the development expenditure need to split into the impairment 6000 and amortisation 8000?Hw to get the 6000?
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