This is so helpful. Becker does an AWFUL job of explaining this topic (as it does for most of FAR). Basically, Becker gives a financial accounting level explanation and then gives CPA level of difficulty MCQ. Becker should pay you to use this explanation it is really helpful.
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Wouldn't it be great to account for the eliminated 24,500 COGS and 10,500 inventory as a portion of the selling party's profit? Out of the total 35,000 (160,000-125,000) profit made by the selling party, 70% or 24,500 of it was sold during the year, and 30% or 10,500 of the profit still remained in the purchasing party's book.
What about the Inflated profit, Co. A recognises profit of 35,000 and Co, B recognises profit of 37,333, Together, they would recognise a profit of 72,333. Where as the actual profit is only 61833 (149,833 - 87500). We have an inlfated profit of 10,500 ( 72,333 - 61833).
no the profit of A is 24500 not 35000 cause they sold just 70% and still 30% inventory so 24500+37,333=61833 that is why they reduced the inventory by 10,500 to bring it down to the real cost 37500 instead of 48000
This is so helpful. Becker does an AWFUL job of explaining this topic (as it does for most of FAR). Basically, Becker gives a financial accounting level explanation and then gives CPA level of difficulty MCQ. Becker should pay you to use this explanation it is really helpful.
Thank you. Please subscribe to FAR Becker supplemental course for complete coverage.
farhatlectures.pathwright.com/library/far-becker-supplemental-course-50601/about/
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If we sold at margin of 25% to 3rd party then sale value should be 140000 (112000*125/100)not 149333.
it's a profit margin not a mark-up. so 149,333 is correct! (112,000/0.75)
Wouldn't it be great to account for the eliminated 24,500 COGS and 10,500 inventory as a portion of the selling party's profit? Out of the total 35,000 (160,000-125,000) profit made by the selling party, 70% or 24,500 of it was sold during the year, and 30% or 10,500 of the profit still remained in the purchasing party's book.
What about the Inflated profit, Co. A recognises profit of 35,000 and Co, B recognises profit of 37,333, Together, they would recognise a profit of 72,333. Where as the actual profit is only 61833 (149,833 - 87500). We have an inlfated profit of 10,500 ( 72,333 - 61833).
no the profit of A is 24500 not 35000 cause they sold just 70% and still 30% inventory so 24500+37,333=61833 that is why they reduced the inventory by 10,500 to bring it down to the real cost 37500 instead of 48000
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