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The question part c says that knott co is a subsidiary there is sales of aluminium to parent co with total sales value of 77m which is recorded in sub FS but not recorded by parent co
I m okay with materiality and URP of 7.7m but how come the group recievables, revenue and profits are overstated ?
How due to goods in transit group inventory is understated and group retained earnings and NCI is overstated ? As what i know is for any URP THE GROUP INVENTORY AND CONSOLIDATED RESERVE SHOULD BE REDUCED Please helpAt the reporting date:
In K’s books – there is revenue and a receivable $77m
In P’s books – nothing – P still needs to record a purchase and payable of $77m and inventory $77m (which is both an asset and reduction in cost of sales).As no adjustment has yet been made in the consolidated FS:
Revenue is o/s $77m (inter-group trading must be eliminated) – and hence profit is overstated – hence NCI is o/s and CRE is o/s
Receivables are o/s $77m (inter-group balances must be eliminated)
Inventory is u/s $77-7.7You seem to be considering only the effect of PURP and ignoring the effects of the transaction having been omitted from P’s books.
Thanks i cannot understand here why inventory is understated by $69.3 is it because P has not recorded the goods in transit and what is the correct treatment for URP?
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