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Hello sir im confused with this question.
Patula Co acquired 80% of Sanka Co on 1 October 20X5. At this date, some of Sanka Co’s inventory had a carrying
amount of $600,000 but a fair value of $800,000. By 31 December 20X5, 70% of this inventory had been sold by
Sanka Co.
The individual statements of financial position at 31 December 20X5 for both companies show the following:Inventories:
Patula Co $3,250
Sanka Co$1,940Requirments: What is the consolidated inventory?
Why the answer is 5250 and not 5130?Hi,
The answer is correct at $5,250 and is calculated as 100% P + 100% S + FV adjustment (on remaining inventory at reporting date).
I think that you will be OK with adding together 100% of each of P and S, giving 5,190 (3,250 + 1,940) but it is the FV adjustment that is the challenge.
The total FV adjustment would be the 200 (800 – 600) which would have been made at acquisition but some of this has been sold since that date and so will no longer included. We’re told that 70% has been sold so therefore 30% is still held, in which case we include 30% of the 200 total adjustment giving 60.
Add the 60 to the 5,190 and you should get your answer.
Thanks
But why do we add the adjustment instead of deducting? PUP should be deducted in inventory?
This is not a PUP, it is a fair value increase in the value of inventory and so is added and not deducted to the inventory figure.
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