Question on FNST AAT mock 3

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sjf369
sjf369 Registered Posts: 13 Regular contributor ⭐
in AAT Level 4 (Level 8 in Scotland)
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

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  • bubs
    bubs Registered Posts: 41 Regular contributor ⭐
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    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
  • sjf369
    sjf369 Registered Posts: 13 Regular contributor ⭐
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    Hiya

    Sorry its mock no 4.

    Thanks
  • bubs
    bubs Registered Posts: 41 Regular contributor ⭐
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    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
  • bubs
    bubs Registered Posts: 41 Regular contributor ⭐
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    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

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