Picant Consolidated sofp

I’m really sorry to say that this is nonsense!

“Sales 1800
cost of sales(1800*100/150)-1200
gross profit-600

debit gre-600
credit inventory-600

Debit inventory-1800
credit cost of sales-1800

Debit trade payable-1600
debit inventory-1800
credit trade receivable-3400

Is this the right double entry? made me tired to understand it.”

Work through the topic of in-transit items and reconciliation of current accounts one step at a time!

(NB In sander’s records the Picant Current Account shows a liability to Picant of $1.6 million) (Don’t ask! Just trust me)

Step 1 accelerate the in-transit item into the records of the receiving entity

Here, it’s Picant sending goods to Sander so, in Sander’s records we need to:

Dr Purchases Account $1.8 million
Cr Picant Current Account $1.8 million

and now our current accounts agree – in Picant according to the question there was a receivable from sander of $3.4 million and in Sander there is now a payable to Picant of $3.4 million ($1.6 million + $1.8 million)

In addition, in Sander, closing inventory has increased so in Sander’s cost of Sales calculation we have added $1.8 million into purchases and increased closing inventory by that same $1.8 so there’s NO affect on Sander’s cost of sales

Now eliminate the unrealised profits. Because it’s Picant that has recognised these profits on the transfer to Sander, it’s Picant’s records that are going to be hit with this PUP

Calculation of PUP is:

50/150 x $1.8 million = $600,000 and the entry is (in Picant’s records):

Dr Retained Earnings $600,000 (by way of an increase in the consolidated cost of sales)
Cr Inventory (SoFP) $600,000

Then reduce consolidated receivables and consolidated payables by $3.4 million intra-group reconciled current accounts

Consolidated inventory line now looks like:

P’s closing inventory + S’s closing inventory + $1.8 million – $600,000

Of course, if it’s a consolidated statement of profit or loss question, the effect of these entries is to increase cost of sales by that $600,000 but we also need to:

Reduce Revenue and reduce Cost of Sales by the value of the whole year’s worth of intra-group sales

OK?