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hi Mike
parent hold 40% of associate. whilst auditing the CSOPL, the auditor discovers a material transaction of $600 sales form associated to parent. the associate regularly sells to achieve a profit margin of 25%. but for this transaction, the associated discounted the sp to achieve a markup of 20%. by how much should the auditor requests the directors to amend the conso cost of sales figure, if none of this goods had been sold?your answer is 40 000. please how do you get that figure? and why is it influence the cost of sales if it just associate not subs.
another question from the same mcq with 400 sales revenue and 30% holding, give the nil answer, why?
Can you see $100,000 unrealised profit when the associate sold $600 to the parent at a mark up of 20%?
And the parent’s investment in the associate is 40%?
So the parent’s share of the pup is 40% x $100 = $40
What I’m finding interesting here is whether the question indicates that the parent also holds at least one subsidiary because, if it doesn’t, then there would be no consolidation.
However, the question does say that you are auditing the csopl so I presume there must be at least one subsidiary as well as the associate.
The other interesting point is that, for pups where an associate is involved, I make the necessary adjustment IN FULL in the associates records and then the parent will take its share of the associate’s reduced profit figure.
However, the answer comes to the same – “by how much should the cost of sale figure be amended?” and the answer is $40,000
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