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Hello Chris, hope u are well.
I have a problem with this question extracted from BPP kit, Ratio and interpretation section. and its about removing the effect of subsidiary from the group accounts, since it has been disposed off during the year.
During the period from 1 January 20X7 to 1 September 20X7, Perkins Co sold $1m of goods to Swanson Co at
a margin of 30%. Swanson Co had sold all of these goods on to third parties by 1 September 20X7As per BPP kit, the answer is like this:
Sales 46,220– 9000(13500*8/12)+1000(intra Group) = 38220
Cost of sales (23,980 – 4,400 (6600 * 8/12)) = 19580Why not to subtracted 1000 from the COS, and what should we do if the other way around happens, incase subsidiary sold the goods. thanks
Hi,
I’m well after a busy week, thanks. Hope it is the same for you.
I don’t think there was anybody in the exam who got the answer correct, as everyone would have (rightly in my opinion but actually technically wrong) deducted the amount from cost of sales.
It is far too technical to try and explain in this forum in writing so I’d not worry about it as you won’t see it again in any exam, pls ti won’t be covered any where either.
Thanks
Thanks Chris, i think i have understood it,
when consolidating, to eliminate intra group we DR. P’s sales and CR. S’s COS , so now we just need to correct the parent figures (CR sales) only, since we are given the full (unconsolidated s’s figures) don’t we.
thanks
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