Question on FNST AAT mock 3

Registered Posts: 13 Regular contributor ⭐
Hi All,

Can someone help, I'm trying to do question 1.5 part b and I can not get the inter company cost of sales figure to match the answer?

It states Madford PLc sold goods which had cost £600,000 to Barle Ltd for £720,000. One third of these goods still remain in inventories at the end of the year.

It says the cost of sales intercompany adjustment is -£680,000 but I just can not get to this figure.

Thanks

• Registered Posts: 41 Regular contributor ⭐
Hi Sjf369

I had a look at practice assessment 3 question 1.5 part b but this does not relate to the question you are referring to. Perhaps you could give me more information or direct me to the correct paper.

Bubs
• Registered Posts: 13 Regular contributor ⭐
Hiya

Sorry its mock no 4.

Thanks
• Registered Posts: 41 Regular contributor ⭐
Hi there

The profit made on revenue is £720000 (revenue) - £600000 costs of sales = £120000 and so only one third of stock remains and 2/3 need to be included in the adjustment which is £80,000

So the total adjustment is £600,000 cost of sales plus an additional £80,000 for the stock which has been sold.

Hope this makes sense but let me know and I will try to explain it in another way.

Must dash back to work.

Bubs
• Registered Posts: 41 Regular contributor ⭐
Hi Sjf

Did you understand my answer. Sorry but I had to dash off yesterday.

Because two thirds of the closing inventory has been sold (i.e. £80000) outside the parent/subsidiary you have to reduce the costs of sales so as to release the unrealised profits. So the total cost of sales is reduced by £600,000 for the intercompany transation and a further £80,000 for the two thirds of inventory sold outside the company.

I hope this makes better sense.

Bubs
sjf369 wrote: »
Hi All,

Can someone help, I'm trying to do question 1.5 part b and I can not get the inter company cost of sales figure to match the answer?

It states Madford PLc sold goods which had cost £600,000 to Barle Ltd for £720,000. One third of these goods still remain in inventories at the end of the year.

It says the cost of sales intercompany adjustment is -£680,000 but I just can not get to this figure.

Thanks