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On 1 April 20X7 Possum Co acquired 60% of the share capital of Koala Co for $120,000. During the year Possum Co sold goods to Koala Co for $30,000, including a profit margin of 25%. 40% of these goods were still in inventory at the year-end. The following extract was taken from the financial statements of Possum Co and Koala Co at 31 March 20X8.
Possum Koala Co
Revenue 750 400
Cost of sales (420) (100)
Gross profit 330 300What is the consolidated gross profit of the Possum group at 31 March 20X8?
I might have got this concept completely wrong. My question is this: Since there is both an intercompany trading and PUP here, don’t we have to adjust for both? Can you please explain why not?
( Dr Sales Cr Cost of sales)
( Dr Group retained earnings Cr Group Inventory)
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