ACCT3011 Study Guide - Quiz Guide: Perpetual Inventory, Deferred Tax, Retained Earnings
Tutorial 4 (Week 5 – week commencing 9 April 2018)
Question 4.11 (part a and c)
Assuming a periodic inventory system (The textbook says that Alpha Ltd group adopts
the perpetual inventory system, we changed it in unit of schedule)
Consolidation adjustment to eliminate intragroup sales to $6.1million
Sales Revenue $6,100,000
Purchases $6,100,000
(c) Unrealised profit in opening inventory
Note – we are also told separately about unrealised profit in closing inventory and so the
correct approach here, is to assume that this opening inventory was sold/used so the
profit is realised in the year; consider why
Cost price is $1,400,000/1.5 = $933,333
Unrealised profit is $1,400,000-$933,333=$466,667
Tax at 30% = $140,000
Retained earnings January 1 20X8
$326,667
Tax expense
$140,000
Cost of goods sold (opening inventory)
$466,667
Elimination of the intragroup unrealised profit in closing inventory at December 31 20X8
Cost price is $1,900,000/1.5 = $1,266,666
Unrealised profit is $1,900,000-$1,266,666=$633,334
Tax at 30% = $190,000
Cost of goods sold (closing inventory)
$633,334
Inventories
$633,334
Deferred tax asset
$190,000
Tax expense
$190,000
Another way to think about it is to assume that the $6.1m was the only intra-group
transaction during the year and assume that B Ltd had acquired the inventory in the
current year (mark up 50%). Assume that the group adopts the periodic system of
inventory, and then consider this worksheet:
A
B
Eliminations
Group
Sales
xxx
(6100000)
6100000
xxx
Opening
inventory
1400000
-
(466667)
933333
Purchases
6100000
4066666
(6100000)
4066666
Closing
Inventory
(1900000)
-
633334
(1266667)
COGS
5600000
4066666
3733333
Inventory
(balance sheet)
1900000
(633334)
1266667
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Document Summary
Tutorial 4 (week 5 week commencing 9 april 2018) Assuming a periodic inventory system (the textbook says that alpha ltd group adopts the perpetual inventory system, we changed it in unit of schedule) Consolidation adjustment to eliminate intragroup sales to . 1million. Note we are also told separately about unrealised profit in closing inventory and so the correct approach here, is to assume that this opening inventory was sold/used so the profit is realised in the year; consider why. Elimination of the intragroup unrealised profit in closing inventory at december 31 20x8. Another way to think about it is to assume that the . 1m was the only intra-group transaction during the year and assume that b ltd had acquired the inventory in the current year (mark up 50%). Assume that the group adopts the periodic system of inventory, and then consider this worksheet: