- May 22, 2021 at 1:08 pm #621432yt3401Member
- Topics: 19
- Replies: 8
I need some help understanding this part of the Perkins Co question in my Kaplan exam kit please. (it says the question is from Mar/Jun 2018)
During the period from 1 Jan 20X7 to 1 Sept 20X7, Perkins co sold $1m of goods to Swanson Co at a margin of 30%. Swanson Co had sold all these goods on to third parties by 1 Sept 20X7.
b) Remove the results of Swanson Co and the gain on disposal of the subsidiary to prepare a revised statement of profit or loss for the year ended 31 Dec 20X7 for Perkins Co only.
In the answer for revenue we take the 20X7 consolidated revenue of 46,220 and subtract 8 months of S’s revenue and then add back the 1,000 we would have normally eliminated as an intra group sale. However, I dont understand why for cost of sales we take the consolidated COS of 23,980 and subtract 8 months of S’s COS but do not add back the 1,000 which we would have normally eliminated too.
In the note given in the answer it says:
Originally, the intra group sale resulted in $1m turnover and $0.7m costs of sales. These amounts were recorded in the individual financial statements of P Co. On consolidation, the $1m turnover was eliminated – this needs to be added back. The corresponding $1m COS consolidation adjustment is technically made to Swanson Co’s financial statements and so can be ignored here.
Im not sure what this means, could you please explain it in a simpler way?
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