FNST question

amyjayne27

Hi all,

Just revising for FNST - and have a question:

When dealing with a inter company sale/purchase on the statement of comprehensive income, I understand that you deduct the selling price both from revenue and cost of sales, but with the unrealised profit do you add this back or deduct it? I thought it was a deduction but working through greenlight the answer was to add back?

Any advice would be greatly appreciated.

Many thanks

topcat

Wanted to help as i have done this exam but have already forgot , dont use it i loose it

Nps

As the profit has been overstated (as it has not yet been realised by the group as a whole) you need to reduce profit. This is done by increasing the cost of sales so yes, it is added back.

amyjayne27

Thank you NPS, thats great. And Topcat I know how you feel! I find these units so hard as I never use them at work and probably never will!

amyjayne27

Hi all, sorry I still dont think I have grasped this yet!

I understand that the selling price of the intercompany sale/purchase is deducted from revenue, but I keep getting confused on what to deduct from cost of sales! I did think it was selling price then add back unrealised profit, but now I have read some of my notes and I have written what the stock cost plus the amount sold ie 2/3? So confused!