ACCA FR · Chapter 13 · Question 2 of 11
Cougar Co acquired a subsidiary on 1 April. For the year ended 31 December, Cougar Co's cost of sales was $6,000,000 and the subsidiary's was $4,000,000, incurred evenly through the year. Intra-group sales of $800,000 were made after acquisition, and unrealised profit on goods still in the group's inventory at the year end is $50,000. What is consolidated cost of sales?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $8,250,000
Explanation
Time-apportion the subsidiary: $4,000,000 x 9/12 = $3,000,000. Eliminate intra-group purchases of $800,000. Add the unrealised profit, which reduces closing inventory and so increases cost of sales: $6,000,000 + $3,000,000 - $800,000 + $50,000 = $8,250,000.
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