Cons Income Statement

jewels.p

I have been concentrating on mastering the Cons SOFP but now am trying to remember everything for Cons Income Statement.

Can anyone help me with this example.

Smith(parent) sold Flowers(sub) goods for £20,000 making a profit of £5,000. These goods were all sold by Flowers before the year end.

It says in the answer that you deduct £20,000 from Smiths Revenue and £20,000 from Flowers C.O.S but do you need to do anything with the £5,000 profit?

PGM

only if there is any unsold stock at year end.

if there is, ie all unsold, add 5k to the COS of the selling co.

jewels.p

PGM wrote: »

only if there is any unsold stock at year end.

if there is, ie all unsold, add 5k to the COS of the selling co.

Is that as well as deducting the £20,000?

Confused I am!

Thanks

PGM

Think of it as 2 seperate jobs;

1: You have to remove inter company sales. Or else the group will record the sale of the same item twice in its group accounts. Thats why you have to deduct the 20k from both sales and cost of sales, whether or not the stock remains unsold.

2: Remove profit from unsold items. Or else the group is making a profit from selling stuff from itself, which from a group point of view has not been sold to a customer. So, no profit element can be recognised until its sold out of the group.

Hope this helps, it is a tricky adj to get your head around!

jewels.p

So what entries would I need if only half the goods were sold?

PGM

Half the goods sold, would mean 2500 of the profit is unrealised (should not be recognised by the group).

So an additional adjustment would need to be made by increasing COS by 2500 in the consolidation.

ps the other entry credit, would go to stock, reducing the balance which would be overstated by 2500.

jewels.p

Upped this cause I got confused again. Am I right in thinking any unrealised profit gets added back to COS cause I have just looked at my Osbourne Book and in their example it deducts the unrealised profit from closing inventories in COS. I thought I understood CIS but not now!

Esme

If you deduct a figure from closing inventories, this increases cost of sales.

Rinske

http://forums.aat.org.uk/showthread.php?t=27167&highlight=consolidated+income

Somewhere on page one of this thread, I made some comments on it, does that help at all?

jewels.p

Esme wrote: »

If you deduct a figure from closing inventories, this increases cost of sales.

Oh god so it does how much of a doughnut am I! lol

It was just the fact that it said deduct it from COS and I thought you added it never mind I am blethering now.......thanks for that!

jewels.p

Rinske wrote: »

http://forums.aat.org.uk/showthread.php?t=27167&highlight=consolidated+income

Somewhere on page one of this thread, I made some comments on it, does that help at all?

Yes thanks Rinske. I dont mind if we get a Cons Income Statement I just hope there is no unrealised profit figure to adjust for cause I will prob get myself all mixed up!