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P has owned 60% of issued equity share capital of S. At 31 Oct 2007 the individual statements of FP include:
P’s Current Assets $700,000
P’s Current Liabilities $300,000S’s Current Assets $500,000
S’s Current Liabilities $200,000During the year ended 31 Oct 07, P made $100,000 Sales on Credit to S. S had one quarter of these goods in inventory at 31 Oct 07. P makes a 20% gross profit margin on all sales.
On 31 Oct 07, S sent a cheque for $50,000 to pay all of the outstanding balance due to P. P did not receive this cheque until 2 November 2007
Answer = Current Assets $1.195m and Current Liabilities $0.5m
I know the PURP = (1/4 x 100,000 x 0.2) = $5000
But how did they arrive at the answer especially the Current Liabilities
Can you please go through it and give me the rationale please
I don’t understand
Hi,
To get to the figures, you need to consolidate P and S 100% and then adjust for the PURP.
Group Current Assets (700,000 + 500,000 – 5,000) = 1,195,000
Group Current Liabilities (300,000 + 200,000) = 500,000The cash in transit increase the cash balance but reduces the receivables balance, so there is no overall impact on the group’s current asset figure.
Hope this clears up your troubles.
Thanks
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