Page 428 - F3 -FA Integrated Workbook STUDENT 2018-19

Chapter 24

Example 2d

Extract from Hide and Seek example:

(iii) During the year ended 31 December 20X5, Hide sold goods to Seek for
$25,000 making a gross profit margin on the sale of 30%. At the
reporting date, one third of these goods remained unsold in the
inventories of Seek.

Required:

Calculate the adjustment required for the unrealised profit for inclusion
in the consolidated statement of financial position as at 31 December
20X5 and complete the group retained earnings working (W5).

Solution

%age $

Initial cost of goods 70
Profit element (30/100 × $25,000) 30 7,500

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Sale price of goods 100 25,000

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Unrealised profit on proportion of goods unsold at the reporting date:

1/3 × $7,500 = $2,500.

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