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Hello,
I do not understand the adjustment arising from paragraph
( iii) In Jan 2004 Aspen sold goods to Hapsburg at a selling price of 4m. These goods had cost Aspen 2.4m. Hapsburg had 2.5m (at cost to Hapsburg) of these goods still in inventory at 31 March 2004.In the lecture the solution showed is:
Cost + Profit = Selling Price
2.4 + 1.6 = 4 -> Aspen
1.5 + 1 = 2.5 -> HapsburgHow 1.5 and 1 was reached to? since only 2.5 is given in the task!?
Really would appreciate any explanation.I figured that out, it is just a proportion rule (so called simple triple law) :
2.4/4 = 60%
The same ratio must be applied for the Parent also so:
Cost/2.5 = 60% => Cost = 0.6*2.5 = 1.5
2.5 – 1.5 = 1Ok! Hapsburg had sold 1.5 out of the 4 which they bought. So they still had in inventory 2.5 out of the 4. 2.5 out of 4 is 5/8ths
Profit recorded by Aspen was 1.6. Of this, 5/8ths is unrealised.
5/8ths of 1.6 is 1 and that then is the extent of the unrealised profit provision
I understand, I just received the same result, but the logic is not the same.
Thank you for this clarification. Very helpful.
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