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1 Basil acquired 60% of Parsley on 1 March 20X9. In September 20X9 Basil sold $46,000 worth of
goods to Parsley. Basil applies a 30% mark-up to all its sales. 25% of these goods were still held in
inventory by Parsley at the end of the year.An extract from the draft statements of profit or loss of Basil and Parsley at 31 December 20X9 is:
Basil Parsley
$ $
Revenue 955,000 421,500
Cost of sales (407,300) (214,600)
Gross profit 547,700 206,900
All revenue and costs arise evenly throughout the year.
What will be shown as gross profit in the consolidated statement of profit or loss of Basil for the year ended
31 December 20X9?A $717,463
B $751 ,946
C $716,667
D $751,150 (2 marks)
Here, i know how to do the problem, but I don’t understand how they arrive at the unrealised profit because the wording is confusing
This is F3 stuff!
‘… Basil sold $46,000 worth of goods to Parsley. Basil applies a 30% mark-up to all its sales. 25% of these goods were still held in inventory’
$46,000 sales of which 25% is still in inventory so $11,500 still in inventory
Cost + profit = selling price
Profit is 30% mark up
So cost is 100%
So:
100 + 30 = 130 and the proportion of the $11,500 in inventory represented by the unrealised profit is 30/130 x $11,500 = $2,654
OK now?
Dear tutor,
I have a question concerning this question. Don’t we have to deduct the 46000 of revenue from Basil Co 955.000 total revenue as this is an intragroup transaction?
Thahk you
Hi,
Yes, you would deduct the intragroup sales from revenue but firstly we do not know the full amounts made in the year and secondly, even if we did know the amounts, the adjustment would not impact the gross profit. Why? We DR Revenue CR CoS by the same amount and so no overall impact on the profit.
Thanks
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