Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Example 3 – Unrealised Profit – Group SPL Chapter 24
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- November 14, 2021 at 12:20 pm #640618ty0311Participant
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With reference to the example question, it says that “Nick sold $10m goods to Gary at a mark-up of 25% on cost, one quarter of these goods are in inventory at the year end.”
I read this meaning Nick sold the goods to Gary at $12.5m. Doesn’t this mean then the unrealised profit should be $625k? I calculated this by this logic:
if no inventory was sold (i.e. all are still in Gary’s inventory), then the unrealised profit should be $2.5m (inventory cost to Gary = $12.5m, and cost of sales to Nick was $10m). So if 1/4 are not yet sold, then the unrealised profit would be 1/4 * $2.5m = $625k.
And likewise, if Nick sold the goods to Gary at $12.5m, shouldn’t the adjustment to Revenue and Cost of Sales for consolidation be $12.5m (i.e. debit Revenue by $12.5m / credit COS by $12.5m)?
Additionally, I am struggling to understand why the PUP needs to be reflected under Nick’s account at consolidation but not under the ‘adjustment’ column likewise with the adjustment for the intra-group revenue and cost of sales.
Much appreciated your guidance in advance!
TimNovember 20, 2021 at 10:04 am #641145P2-D2Keymaster
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The amount given of $10 million is the amount at which the good were sold. So, the profit will be 25/125 of this sales revenue.
As Nick is the seller then we adjust Nick’s figures in the consolidation schedule for the profit. The intra-group revenue where we remove the revenue and cost of sales is done in the adjustment column as it does not impact the overall group profit figure. We’re just getting the group accounts correct on a line-by-line basis.
Hope that helps clear it up.
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