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Dec 08 Q1-Pedantic, when we are working current assets for CSFP, why not subtract intra group sales 8m as S sold inventories to P after acquistion?
answer sheet is:
P 16m
S 6.6m
URP in inventory (0.8m)
Cash in transit 0.2m
intra-group balance 0.6mHow to understand URP in inventory (0.8m),intra-group balance 0.6m
8m is the intra group sales and 5.2 m out of 8m is sold to third party. so the remaining in inventory is 8m-5.2m=2.8m. profit in 2.8m is 2.8*40/140=0.8m.
but, in CIS, we deduct 8m from revenue and cost of sales.
cr receivables 0.4
dr payables 0.4cr receivables 0.2
dr cash 0.2so, intra group receivables (0.6) and CIT 0.2.
whenever, u get a question of CIT or GIT(goods in transit).
remember this,for CIT,
dr group cash
cr group receivablesfor GIT,
dr group inventory
cr group payablesthen do journal entry for cancelling remaining receivables and payables.
it is good to do step by step than just jumbing to cosolidate all at once and then get confused.
cr group receivables 0.4
dr group payables 0.4this is to cancel intra group accounts.
Hey, Vipin, so happy you still here to help me 🙂
Agree – but, in CIS, we deduct 8m from revenue and cost of sales.
And also agree and realize intra group is 0.6-0.2(GIT)=0.4.
But why I always think for 8m inventories from S to P, we should also delete in CIS?
I mean we should:
1) deduct 8m from revenue and cost of sales
2) deduct 8m from AR and AP in CIS for P?there is no receivables and payables In CIS.
just bcoz there was a trade of 8m, why guess there is a trade receivable or payable? intra group accounts will be explicitly given in the question, if not, no need to deduct by assuming that is a credit purchase.
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