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Hi Mike,
I’m currently working through the mini exercises in the notes and have queries.
I have followed your lecture and applied the method. I found the PUP on the unsold inventory, then applied double entry by DR retained earnings and CR inventory in the seller’s books. However, my answers don’t always agree with yours.
Q 3. H sold 80000 goods to A at a gross profit of 30%. A had sold none of these goods by the end of the year.
I found the PUP of 24000 which was then treated in H’s books (H being the seller). However, the answer given is that it should be treated in the books of A.
Same goes for Q 8.
Mulling over it, I can’t understand why PUP is being deducted from the inventory of the seller when this inventory is no longer in the seller’s books…
Can you help please?
Thanks
ClaireHave you read the course notes? Particularly the note at the bottom of page 64?
“I can’t understand why PUP is being deducted from the inventory of the seller when this inventory is no longer in the seller’s books”
Let’s assume that we have inventory of $60,000 (H) and $40,000 (S) and there is a pup to be deducted of $5,000
Does it matter to you how the consolidated inventory is calculated? Is there any difference between …
$60,000 – $5,000 + $40,000 = $95,000 and
$60,000 + $40,000 – $5,000 = $95,000?
Surely, no difference at all
However, it is VITAL that the debit to retained earnings is in the correct records because, if it’s an S adjustment, that will affect the nci (and if it’s an H adjustment, the nci should not be affected)
OK?
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