- This topic has 5 replies, 2 voices, and was last updated 6 years ago by
.
- Posts
hi chris,
i dont understand what mike is what can u please reiterate. https://opentuition.com/topic/inventory-88/
so basically inventory (-) purp
but fv increase on inventory, hence inventory (+) purpalso in this case it doesnt usually give the margins. so like we take full.
Hi chris,
want to know theres a PYQ in Sept/dec 17 steamer co.
it says
now offered to related party, sales margin at 25%, cost 6m sp 8m so profit 2m
then if at market price margin would be 45%.so SP became 10.9, cost still at 6m and profit is 4.9m
my question is since P is selling to S wouldn’t it be that P profit from selling it at market price to S. Why is the answer given says that the S co would have the trading advantage of $4.9m instead of P.
If S got a lower price which it did due to being part of the group, it cost lower cost to sell and thus generating higher profit on its own financial statements.
but how is it that 4.9 is advantage to S as this would be the cost to S and sale to P
Im perplexed.
@aarina said:
hi chris,i dont understand what mike is what can u please reiterate. https://opentuition.com/topic/inventory-88/
so basically inventory (-) purp
but fv increase on inventory, hence inventory (+) purpalso in this case it doesnt usually give the margins. so like we take full.
Hi,
Be careful here as there is no PURP as the sale of inventory by the subsidiary is outside of the group, so is just a normal sale of goods. What the question is testing is the fair value of inventory on acquisition of the subsidiary.
There is a fair value at acquisition of inventory that is 200,000 higher than book value and then of this 70% has been sold by the reporting date and so we only have 30% of the fair value adjustment to include in the accounts.
Hope that clears it up.
Thanks
@aarina said:
Hi chris,want to know theres a PYQ in Sept/dec 17 steamer co.
it says
now offered to related party, sales margin at 25%, cost 6m sp 8m so profit 2m
then if at market price margin would be 45%.so SP became 10.9, cost still at 6m and profit is 4.9m
my question is since P is selling to S wouldn’t it be that P profit from selling it at market price to S. Why is the answer given says that the S co would have the trading advantage of $4.9m instead of P.
If S got a lower price which it did due to being part of the group, it cost lower cost to sell and thus generating higher profit on its own financial statements.
but how is it that 4.9 is advantage to S as this would be the cost to S and sale to P
Im perplexed.
]
Hi,
I think you’re perplexed as you are over complicating it. You ignore what the normal margin on the sale would be and adjust for the margin that there goods were sold at between the two companies. So here it is a 25% margin so we adjust for 25% of the $1 million of goods still held at the reporting date. As the parent was the seller we adjust P’s retained earnings and the group inventory.
Thanks
lol i just came to check this. yes i tend to over complicating many things in my life. learning to unwind that still prove to be a challenge. One time i overthink think too much i thought something that was dead ass morally wrong was right. never again will i move beyond that threshold of insanity. may god always have protection over me and my sanity and all the creatures that are prone to extinct due to global warming particularly baby polar bear, dalai lama, and honourble consul of sbr and f7, sir chris.
- You must be logged in to reply to this topic.