Question 1

Section B - Case 1: Group Consolidations

**Scenario: Nebula Aerospace**
On 1 January 20X5, Nebula Aerospace acquired 80% of the equity share capital of Comet Components. The purchase consideration was $500,000 cash. At the date of acquisition, Comet's share capital was $100,000 and its retained earnings were $250,000. The fair value of the non-controlling interest (NCI) at acquisition was $110,000. 
During the year ended 31 December 20X5, Comet made a profit of $80,000. Nebula sold goods to Comet for $50,000 at a 25% mark-up on cost. Half of these goods remain in Comet's inventory at year-end. Comet owes Nebula $20,000 at year-end.

Before adjusting for the PUP, what amount should be deducted from consolidated Cost of Sales in respect of the intra-group trading? (Enter the number only)

Accepted Answer

The elimination of intra-group sales requires an equal deduction from both Revenue and Cost of Sales.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Deducting the cost of the goods to the parent ($40,000) instead of the transfer price ($50,000).

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA FA — Financial Accounting Practice Exam 5

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