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Goods in transit

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Goods in transit

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by alawi sayed.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • July 30, 2021 at 8:25 pm #629879
    alawi sayed
    Participant
    • Topics: 154
    • Replies: 168
    • ☆☆☆

    Hello Sir,

    In the following question there is a sale has to be recorded at $ 100,000 so they debited the inventory and credited payables that’s fine ,but why this $ 100,000 is not affecting the cost of sales in their answer,

    please help to me to clear this ambiguity ,

    Thank you very much,

    ———————————————————————————————————————–

    Boo Co acquired 80% of Goose Co’s equity shares for $300,000 on 1 January 20X8. At the date of acquisition
    Goose Co had retained earnings of $190,000.
    On 31 December 20X8 Boo Co despatched goods which cost $80,000 to Goose Co, at an invoiced cost of
    $100,000. Goose Co received the goods on 2 January 20X9 and recorded the transaction then. The two companies’
    draft financial statements as at 31 December 20X8 are shown below.
    The fair value of the non-controlling interest in Goose Co at the date of acquisition was $60,000.
    STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
    FOR THE YEAR ENDED 31 DECEMBER 20X8
    Boo Co Goose Co
    $’000 $’000
    Revenue 5,000 1,000
    Cost of sales 2,900 600
    Gross profit 2,100 400
    Other expenses 1,700 320
    Profit before tax 400 80
    Income tax expense 130 30
    Profit for the year 270 50
    Other comprehensive income:
    Gain on revaluation of property 20 –
    Total comprehensive income for the year 290 50

    STATEMENTS OF FINANCIAL POSITION AT 31 DECEMBER 20X8

    $’000 $’000
    Assets
    Non-current assets
    Property, plant and equipment 1,940 200
    Investment in Goose Co 300 –
    2,240 200

    $’000 $’000
    Current assets
    Inventories 500 120
    Trade receivables 650 40
    Cash and cash equivalents 170 35
    1,320 195
    Total assets 3,560 395
    Equity and liabilities
    Equity
    Share capital 2,000 100
    Retained earnings 500 240
    Revaluation surplus 20 –
    2,520 340
    Current liabilities
    Trade payables 910 30
    Tax 130 25
    1,040 55
    Total equity and liabilities 3,560 395

    Required
    Prepare a draft consolidated statement of profit or loss and other comprehensive income and statement of financial
    position. It is the group policy to value the non-controlling interest at acquisition at fair value.

    Answer:
    BOO GROUP – CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME
    FOR THE YEAR ENDED 31 DECEMBER 20X8
    $’000
    Revenue (5,000 + 1,000 – 100 (W5)) 5,900
    Cost of sales (2,900 + 600 – 100 + 20 (W5)) (3,420)
    Gross profit 2,480
    Other expenses (1,700 + 320) (2,020)
    Profit before tax 460
    Tax (130 + 30) (160)
    Profit for the year 300
    Other comprehensive income
    Gain on property revaluation 20
    Total comprehensive income for the year 320
    Profit attributable to
    Owners of the parent 290
    Non-controlling interest (20% × 50) 10
    300
    Total comprehensive income attributable to
    Owners of the parent (ß) 310
    Non-controlling interest 10
    320
    CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 20X8
    $’000 $’000
    Assets
    Non-current assets (1,940 + 200) 2,140
    Goodwill (W2) 70
    Current assets
    Inventories (500 + 120 + 80) 700
    Trade receivables (650 – 100 (W5) + 40) 590
    Cash and cash equivalents (170 + 35) 205
    1,495
    Total assets 3,705

    $’000 $’000
    Equity and liabilities
    Equity attributable to owners of the parent
    Share capital 2,000
    Retained earnings (W3) 520
    Revaluation surplus 20
    2,540
    Non-controlling interest (W4) 70
    Total equity 2,610
    Current liabilities
    Trade payables (910 + 30) 940
    Tax (130 + 25) 155
    1,095
    Total equity and liabilities 3,705

    Workings

    1 Group structure
    Boo Co
    80%
    Goose Co

    2 Goodwill
    $’000 $’000
    Consideration transferred 300
    Fair value of non-controlling interest 60
    360
    Fair value of net assets:
    Share capital 100
    Retained earnings 190 (290)
    Goodwill 70

    3 Retained earnings
    Boo Co Goose Co
    $’000 $’000
    Per question 500 240
    Unrealised profit (W5) (20)
    480
    Less pre-acquisition (190)
    50
    Goose: 80% × 50 40
    Group total 520

    4 Non-controlling interest
    $’000
    NCI at acquisition 60
    NCI share of post-acquisition retained earnings (50 × 20%) 10
    70

    5 Intragroup issues
    Step 1: Record Goose Co’s purchase
    DEBIT Cost of sales $100,000
    CREDIT Payables $100,000
    DEBIT Closing inventory (SFP) $100,000
    CREDIT Cost of sales $100,000
    These transactions can be simplified to:
    DEBIT Inventory $100,000
    CREDIT Payables $100,000
    Step 2: Cancel unrealised profit
    DEBIT COS (and retained earnings) in Boo $20,000
    CREDIT Inventory (SFP) $20,000
    Step 3: Cancel intragroup transaction
    DEBIT Revenue $100,000
    CREDIT Cost of sales $100,000
    Step 4: Cancel intragroup balances
    DEBIT Payables $100,000
    CREDIT Receivables $100,000

    August 1, 2021 at 10:01 am #630017
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    Hi,

    If they have made the sale intra-group then we would record the sale but then eliminate it as it is intra-group, hence no overall adjustment has been made.

    Thanks

    August 6, 2021 at 12:35 pm #630587
    alawi sayed
    Participant
    • Topics: 154
    • Replies: 168
    • ☆☆☆

    Thanks

  • Author
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