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Inter- group sales

Unrealised profit

1. Swing and Cat


Swing purchased 80% of Cat's equity on 1 January 20X8 for $120,000 when
Cat’s retained earnings were $50,000. The fair value of the non-controlling
interest on that date was $40,000. During the year, Swing sold goods which cost
$80,000 to Cat, at an invoiced cost of $100,000. Cat had 50% of the goods still
in inventories at the year end. The two companies' draft financial statements as
at 31 December 20X8 are shown below.

2. Black and Bury


Additional information
(a) Black purchased its $1 ordinary shares in Bury on 1 November 20X0. At
that date the balance on Bury's retained earnings was $2 million. The fair value
of the non-controlling interest at the date of acquisition was $8,800,000.
(b) During the year ended 31 October 20X5 Black sold goods which originally
cost $12 million to Bury. Black invoiced Bury at cost plus 40%. Bury still has
30% of these goods in inventory at 31 October 20X5.
(c) Bury owed Black $1.5 million at 31 October 20X5 for some of the goods
Black supplied during the year.

3. Northon and Prestend


The following information is also available.
(a) Prestend purchased 2,800,000 shares in Northon a year ago when Northon
had retained earnings of $60,000. The fair value of the non-controlling interest
at the date of acquisition was $1,415,000.
(b) During the year Prestend sold goods with an invoice value of $240,000 to
Northon. These goods were invoiced at cost plus 20%. Half of the goods are
still in Northon's inventory at the year end.
(c) Northon owes Prestend $30,000 at 31 October 20X7 for goods it purchased
during the year.

4. Liverton and Everpool


The following information is also available.
(a) Everpool's total share capital consists of 4,000,000 ordinary shares of $1
each.
(b) During the year ended 31 May 20X6 Liverton sold goods costing $110,000
to Everpool for $200,000.
At 31 May 20X6, 60% of these goods remained in Everpool's inventory.
5. Spyder and Phly
The following information is also available.
(a) Spyder purchased 480 million shares in Phly some years ago, when Phly had
a credit balance of $95 million in reserves. The fair value of the non-controlling
interest at the date of acquisition was $165 million.
(b) At the date of acquisition the freehold land of Phly was valued at $70
million in excess of its book value.
The revaluation was not recorded in the accounts of Phly.
(c) Phly's inventory includes goods purchased from Spyder at a price that
includes a profit to Spyder of $12 million.
(d) At 31 October 20X5 Phly owes Spyder $25 million for goods purchased
during the year.

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