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Sand co acquired 80% of equity share capital of Sun co several years ago. in the year to 31/12/x4 sand co made a profit after tax of £120000 and Sun co made a profit after tax of £35000. During the year sun co sold goods to Sand co at a price of £40000. The profit mark up was 40% on the sales price. At 31/12/x4, 25% of these goods were still held in the inventory of sand co.
What profit is attributable to the parent company in the consolidated statement of P&L of the Sand group for the year to 31/12/x4.
My answer was £144000 based on the following:
100% Sand = £120000
80% Sun = £28000
Less PUP = (£4000)
Total = £144000PUP Working: £40000 x 40% = £16000 profit
£16000 x 25% in inventory = £4000The actual answer is £144800 so I am missing where the £800 has come from, but I thought I had dealt with everything, please can someone explain?
It is Sun who sold the goods to Sand, and so the unrealised profit of $4000 is included in Sun’s profits.
So when consolidating, the $4000 needs removing from Sun’s profit.So the profit attributable to Sand, the parent, is:
100% Sand = $120,000
80% Sun = 80% x (35000 – 4000) = $24,800So total = $144,800
Hope that helps 🙂
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