March/June 2018 – Perkins – Intra-group sales

Hi,
I have a question about how to deal with intra-group sales for Group Revenue and Cost of good sales in the consolidated SPL.

Q: During the period from 1 January 20X7 to 1 September 20X7, Perkins Co sold $1m of goods to Swanson Co at a
margin of 30%. Swanson Co had sold all of these goods on to third parties by 1 September 20X7.

(b) Remove the results of Swanson Co and the gain on disposal of the subsidiary to prepare a revised statement of profit or loss for the year ended 31 December 20X7 for Perkins Co only. (4 marks)

As far as I know, we should deduct intra-group sales from both Revenue and Cost of good sales but the answer says that the intra-group sales is only deducted from Revenue and ignore it from COGS. I can’t picture how it works. Can you please elaborate this issue?

Thanks.