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ACCA · Question 39 · Preparing Simple Consolidated Financial Statements
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
What is the gross profit margin percentage on the intra-group sales?
Section B - Case 1
Scenario: GlobalTech PLC acquired 80% of CloudServe Ltd on 1 July 20X5. Year-end is 31 December 20X5. GlobalTech paid $5m cash and issued 1m shares (market value $2 each). CloudServe's net assets at acquisition were $6m. Fair value of NCI at acquisition was $1.5m. Post-acquisition, CloudServe sold goods to GlobalTech for $1m at a 25% mark-up on cost. Half of these goods remain in inventory at year-end. CloudServe's profit for the full year was $800k (accruing evenly).
What is the gross profit margin percentage on the intra-group sales?
How to approach this question
Convert mark-up to margin. Margin = Mark-up / (100 + Mark-up). 25 / 125 = 1/5 = 20%.
Full Answer
The goods were sold at a 25% mark-up on cost. This means Cost = 100%, Profit = 25%, Sales = 125%. The gross profit margin (profit as a percentage of sales) is 25 / 125 = 20%.
Common mistakes
Assuming margin and mark-up are the same (25%).
Practice the full ACCA FA — Financial Accounting Practice Exam 6
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