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Hi may i read in bpp text that
– good sold by P increases COS by unrealised profit
– good sold by S increases COS by full amount of unrealised profit and decrease NCI by share of unrealised profit.I want to know what is meant by this. Does the urp from goods sold by P, need to be taken full amount or a of share (P%)? i would like a clarification on this please
At the back of the book theres this question Fallowfield and Rusholme.
S sold goods to P for $40K including 25% mark up. Half remained unsold.
So the URP is $4.In the answer, the NCI calculation SPFY is reduced by URP full amount of $4 instead of a NCI% share.
Why is that so?Hi,
If P sells to S then the profit has been made in P’s books. To remove the profit we will increase the cost of sales in P’s books. This will not impact the NCI as it is an adjustment to P’s profits.
If S sells to P then the profit has been made in S’S books. To remove the profit we will increase the cost of sales in S’s books. This will impact the NCI as we are adjusting S’s profits and the NCI own their share of S’s profits.
In making the adjustment for unrealised profit, you put the amount in the workings in full. There is no need to take any share of it.
If you look at the proforma working in the class notes for the SPL and the videos explaining it then you will see the detail a bit more.
Thanks
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