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Question:
“After the acquisition Sentinel sold goods to Prodigal for $40 million. These goods had cost Sentinel $30 million, $12 million of the goods sold remained in Prodigal’s closing inventory.”The answer is a 3000 addition to cost of sales and a 3000 addition to retained earnings.
I am hopelessly lost with this. Can you explain?Now, i feel that with every question including an intragroup trading, i get so lost and never get it right. Is there a simple explanation for this concept that i am just not getting? Or is there a relevant lecture that you could point me at (i have listened to all previously)?
Thanks in advance
“The answer is a 3000 addition to cost of sales and a 3000 addition to retained earnings.”
No wonder you’re lost! The answer is, in fact “The answer is a 3000 addition to cost of sales and a 3000 DEDUCTION FROM retained earnings.”
What are you stuck with?
(a) The calculation of $3,000 or
(b) Why we add to cost of sales and deduct from retained earnings?
Let me know and I’ll get back to you
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