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Shi2004.
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Shi2004
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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?P2-D2
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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
Shi2004
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But why do we add the adjustment instead of deducting? PUP should be deducted in inventory?
Shi2004
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