Unrealised Profit

chelvin

Can someone help me please.

I have to find the unrealised profit. And i cant figure it out!!!!

During the year Churchill purchased goods from Winston for £60.000. Winston had invoiced these goods at cost plus 33.3% a third of these goods were still held as inventories at the year end.

Can anyone help.

roy ramphul

sold for 60,000(including profit element)
1/3 * 60,000+= £20,000 left in stock at selling price

stock valued at selling price (unrealisable profit)

mark up 1/3
margin = 1/4 * 20,000
Profit = 5,000
Stock should be valued at (20,000-5,000)=15,000

chelvin

Please could someone let me know where i have to post what to?

peugeot

Consolidation is the process of combining the results of two entities into one (a process of combining some transactions and cancelling others). This means that any intra group trading (trading between parent and subsidiary and vice-versa) must be eliminated from the results of the consolidated accounts to give a true picture.

The sale of $60,000 by Winston to Churchill needs to be eliminated so you would reduce in sales in Winston by $60,000 and reduce cost of sales by the same amount in Churchill.

The next thing you have to do remove the unrealised profit still in Churchill's inventory at the year end. If we don't remove the unrealised profit, the stock figure in the consolidated financial statements will be overstated. To do this credit inventory in the consolidated balance sheet by $5k (as worked out by Roy Ramphul above) and debit closing inventories in the consolidated income statement by $5k. If you are just doing a consolidated income statement, just debit closing inventories.

Regards
Steve