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Question: Pyramid sells goods to Square at cost plus 50%. Below is a summary of the recorded activities for the year ended 31 March 20X2 and balances at 31 March 20X2:
Pyramid SquareSales to Square $16,000
Purchases from Pyramid $14,500On 26 March 20X2, Pyramid sold and despatched goods to Square, which Square did not record until they were received on 2 April 20X2. Square’s inventory was counted on 31 March 20X2 and does not include any goods purchased from Pyramid.
(*) Can you show me how to calculate Unrealised profit, intra – receivables and payables?
Presumably, all the $14,500 previously recorded have been sold by the year end. If not, we need to deduct the pup of 50/150 of the remaining goods in Square and remove that amount as a pup in Pyramid’s retained earnings.
Now, the $1,500 in transit items. The pup is 50/150 x $1,500 = $500
The $1,500 needs to be recorded by Square (debit purchases and credit Pyramid)
Current accounts now reconcile so cancel $16,000 from both revenue and from cost of sales
The pup on the transit items ($500) is now added to combined cost of sales and the combined closing inventory (which we have just increased by $1,500 in transit inventory) now needs to be reduced by the pup on the intransitive inventory
All clear?
The most important thing I wonder here whether $14,500 purchased by Square from Pyramid was sold out.
This question in the BPP revision kit, I know that if $14,500 is sold out, the unrealised profit will be calculated by 50/150 * (16000-14500).
I am not sure whether this question lacks the things “sold out”.
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