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Intra Group Transactions — elimination

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Intra Group Transactions — elimination

  • This topic has 2 replies, 2 voices, and was last updated 1 year ago by P2-D2.
Viewing 3 posts - 1 through 3 (of 3 total)
  • Author
    Posts
  • March 2, 2021 at 12:41 pm #612658
    thepeacock
    Member
    • Topics: 7
    • Replies: 22
    • ☆

    I would very much appreciate if someone can explain the difference between those two questions.
    My main concern is that for Question #1, intra-group sales are cancelled and I understand why, while in Question number 2 this is not the case. Thank you
    I simply cannot get why? Can anyone please explain in simple terms. Here are the 2 questions.
    Question 1
    The following additional information is provided:
    1) Salt Co had machinery included in its net assets at acquisition with a carrying amount of
    $120,000 but a fair value of $200,000. The machinery had a remaining useful life of eight
    years at the date of acquisition. All depreciation is charged to cost of sales.
    2) During the year, Salt Co sold some goods to Paprika Co for $32,000 at a margin of 25%.
    Examiner’s report – F7 September 2017 3
    Three-quarters of these goods remained in inventory at the year end.
    What is the cost of sales in Paprika Co’s consolidated statement of profit or loss for the
    year ended 30 April 20X6?
    A $144,000
    B $132,000
    C $176,000
    D $140,000
    Question 2
    110 Basil acquired 60% of Parsley on 1 March 20X9. In September 20X9 Basil sold $46,000 worth of goods to Parsley. Basil applies a 30% mark-up to all its sales. 25% of these goods were still held in inventory by Parsley at the end of the year.
    An extract from the draft statements of profit or loss of Basil and Parsley at 31 December 20X9 is:
    Basil Parsley
    Revenue 955,000 421,500
    Cost of sales (407,300) (214,600)
    Gross profit 547,700 206,900

    All revenue and costs arise evenly throughout the year.
    What will be shown as gross profit in the consolidated statement of profit or loss of Basil for the year ended 31 December 20X9?

    The answer is:

    Basil 547,700
    Parsley (206,900 × 10/12) 172,417
    PURP ((46,000 × 30 / 130) × 25%) (2,654)
    717,463

    March 2, 2021 at 1:51 pm #612675
    thepeacock
    Member
    • Topics: 7
    • Replies: 22
    • ☆

    Found the answer

    Yes, you would deduct the intragroup sales from revenue but firstly we do not know the full amounts made in the year and secondly, even if we did know the amounts, the adjustment would not impact the gross profit. Why? We DR Revenue CR CoS by the same amount and so no overall impact on the profit.

    So sorry for bothering.

    March 2, 2021 at 9:01 pm #612840
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 6473
    • ☆☆☆☆☆

    That’s no problem at all, glad you solved it yourself!

    Thanks

  • Author
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