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During the post acq a S sold goods to p for $30000 S made a Profit of $12000 on these goods. P had $10000 of these goods left in inventory at the year end. Plz how do I treat this in the S of CI? and why do I reduce Rev. and COS with the value of goods in inventory, ie $10000?
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It sounds to me like you should reduce both Rev and COS by $30k as this is the intragroup balance in the postacq period, and you cannot reflect intragroup transactions – ie. S sold and P bought = must cancel.
P then had 1/3 of the goods left at year end (10k/30k). 1/3 * 12k profit = 4k. This 4k is the URP/PUP and since inventory (and therefore profit) has been overstated as a result, we need to reduce profit. To do this we increase COS 4k.
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