Home For AAT student members AQ 2013 AAT Level 4 (Level 8 in Scotland)

Consolidated statement

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

Comments

  • sdvsdv Experienced Mentor Registered Posts: 585
    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 ThankiDipak Thanki Well-Known Registered Posts: 135
    Is the retained earnings figured affected at all?
  • PGMPGM Font Of All Knowledge Registered Posts: 1,954
    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 ThankiDipak Thanki Well-Known Registered Posts: 135
    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.
  • uknittyuknitty Experienced Mentor Registered Posts: 591
    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
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