ACCTG 102 Lecture Notes - Lecture 26: Retained Earnings, Financial Statement
Document Summary
Determination of amount of interco profit: interco profit is eliminated based on sellers gross profit rate. Have to be careful to distinguish between percentages stated in terms of sales vs. cost of sales. If ei of ,000 reflects markup of 20% of cost of sales then gp to eliminate would be ,000 / 1. 20 = ,000 (cost) so gp = ,000. If ,000 reflects a gp of 20% of sales = ,000 x . 2 = ,400 gp. Inventory pricing adjustments: if after p sells s merchandise with markup of 50,000 s because of market fluctuations writes inventory down by 35,000 then would only have to eliminate. 15,000 in preparing consolidated f/s if none sold to third parties. Determination of proportion of interco profit to be eliminated: current gaap requires 100% elimination of interco profit when preparing consolidated f/s. This approach is particularly logical under the proposed view of consolidated financial statements, based on the entity rather than parent concept.
