Consolidated statement

Dipak Thanki

Hi,

Last time I sat my fnst exam, I got one question which screwed me over in the end.

I just couldn't get it to balance, the question was something like this,

During the year the business sold some

Inventories for 200,000
Cost was 120,000

I think half had been used or something, can't remember exactly.

No inter company transactions had been made.

Now I just don't have a clue of how I would go about that, do I adjust the retain earnings figure? Or do I adjust the inventories figure?

Or if anybody knows where I can find examples of different consolidated statement situations, that too would be helpful.

Any help would be appreciated.

Thanks

sdv

Dipak Thanki wrote: »

Hi,


Inventories for 200,000
Cost was 120,000

I think half had been used or something, can't remember exactly.

Thanks

You should work out the UNREALISED profit from the unsold stock

sales .........200,000
cosgs........120,000
gross profit 80,000,...... but only half of the good sold- meas only half of profit REALSIED

therefor UNREALISED profit = 80,000 divide by 2 = 40,000

consolidate 2 companies profit & Loss

...........................................Company A..............Company B....................Consolidated

sales.....................................300,000 (-200).........500,000...........................600,000

COGS....................................200,000...................400,000 (-200+40)...........440,000

Gross profit...........................100,000...................100,000......................,,,,,160,000

Dist cost..................................10,000....................10,000.............................20,000
Admis Cost................................5,000......................5,000.............................10,000

Net profit..................................85,000...................85,000........,,..................130,000


please note that when you consolidate both gross profit and net profit of the both companies, they are both down by £40,000 (unrealised profit)

This is because Company A has just transfered stock to company B. It has not actually made profit on unsold transfered stock to company B. Therefore the COGS for company B will go up by £40,000 because the closing stock value of company will come down by £40,000 - UNREASLISED Profit

please also note both the sales and purchases value for the consolidated P&L will come down by 200 dur to inter company transfer.

Dipak Thanki

Is the retained earnings figured affected at all?

PGM

Dipak Thanki wrote: »

No inter company transactions had been made.

sdv wrote: »

You should work out the UNREALISED profit from the unsold stock

There won't be unrealised profit if there hasn't been inter co transactions???

Dipak Thanki

For the retained earnings working out three lines had been given, so I'm sure it had to be adjusted but just don't know how.

uknitty

I had this exact question on my exam, and the way the question was phrased was strange.

I can't remember the exact wording but basically the debtors and creditors had ***already*** been adjusted by £200,000, but the adjustment for
REALISED profit had not been added back on. It was really sneaky!

Dipak I think the three lines you are talking about for retained earnings are just a regular statement of changes in equity so the figures you would put on the lines would be

Retained Earnings Brought Forward
Add Profit for Period
Less Distributions =
Retained Earings for Period