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Hello,
Q) Ruby owns 30% of Emerald and exercises significant influence over it. Emerald sold goods to Ruby for 160,000. Emerald applies a one third mark up on cost. Ruby still had 25% of these goods in inventory at the year end.
What about should be deducted from consolidated retained earnings in respect of this transaction?1) 40,000
2) 3,000
3) 10,000
4) 4,000Answer: (160,000/4) x 25% x 30% = 3,000.
What i am not able to understand is where did 4 come from?
Thanks in advance“Answer: (160,000/4) x 25% x 30% = 3,000.”
cost + profit = selling price
profit is 1/3
therefore cost is 3/3
and selling price is 4/3
profit as a proportion of selling price is 1 (third) / 4 (thirds)
or 1/4
so divide $160,000 to find the profit element of the $160,000 sale = $40,000 and on we go
OK?
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