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Hi, in this question we are asked to remove the effect of subsidiary from our statement of profit and loss, one adjustment was this :
For several years, Saachi Co (Subsidiary) has provided a consultancy service to Parul Co, for which it invoices $400,000 per month. Parul Co includes this as an operating expense and pays
Saachi as soon as it receives the invoice
It has been acquired for four months so the adjustment they did in the answer was to add 1600 in operating expenses which is reasonable but they have also increased the parent revenue by 1600 which I don’t get, kindly help me in this regard.
What is an expense in one set of books will be income in the other for the provision of the services. So, Parul has the expense having used the service and Saachi has the income from Parul having provided the service and been paid for it.