Green Ltd acquired all the issued shares of Blue Ltd on 1 July 2015. Green Ltd p
ID: 2333281 • Letter: G
Question
Green Ltd acquired all the issued shares of Blue Ltd on 1 July 2015. Green Ltd paid $40 000 cash plus 100 000 shares in Green Ltd which had a fair value of $2 per share. On that day, the shareholders' equity of Blue Ltd was Capital Retained earnings General Reserve $180 000 $18,000 $36,000 $234,000 Total At the acquisition date all identifiable assets and liabilities of Blue Ltd were recorded at their fair values Intragroup transactions occurring during the year ended 30 June 2017 were as follows (c) Blue Ltd sold inventory to Green Ltd. Total sales were $60 000 (equals cost plus 25%). At 30 June 2017, Green Ltd still held inventory that it had bought from Blue Ltd for $15 000. Also, Green Ltd sold inventory to Blue Ltd for $20,000 (equals cost plus 20%) and at 30 June 2017 all that inventory was sold outside the group for $25,000 6. Unrealised profit in closing inventory Sales revenue 60 000 Cost of sales Inventory 57 000 3 000 Deferred tax asset 900 Income tax expense 900 7. Other intercompany sales of inventory (inventory sold outside group on 30/6/17) Sales revenue 20 000 Cost of sales 20 000 UNSWExplanation / Answer
solution:
In part 6: since profit margin is cost plus 25% thus sales will be 125% of cost.
thus cost of sales amount in part 6 = $60,000- 15,000*25/125 (i.e. profit in inventory held)
= $60,000 - 3,000 = $57,000
thus, cost of sales in part 7 is $20,000 because it sales for green ltd. but it's cost of sales for blue ltd.
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