ExpertMedium1 markShort Answer
ACCA · Question 40 · Preparing Simple Consolidated Financial Statements
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the total profit made by CloudServe on the intra-group sales (in $).
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
Calculate the total profit made by CloudServe on the intra-group sales (in $).
How to approach this question
Apply the margin to the sales value. Sales = $1,000,000. Margin = 20%. Profit = $1,000,000 * 20% = $200,000.
Full Answer
The total intra-group sales value is $1,000,000. Using the gross profit margin of 20% (derived from the 25% mark-up), the total profit made on these sales is $1,000,000 * 20% = $200,000.
Common mistakes
Calculating 25% of $1,000,000 ($250,000).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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