Question

Public Berhad owns 75% of the issued equity share capital of Kelly Berhad. At the year end, Kelly Berhad held inventories valued at RM160,000 and Public Berhad held inventories valued at RM90,000. The inventories held by Kelly Berhad included RM20,000 of goods purchased from Public Berhad at a profit margin of 30%. There was also inventories in transit between the 2 companies which Public sold to Kelly earlier; this amounted to a further RM10,000 at selling price.

Calculate the value that the inventories should appear in the consolidated statement of financial position

Answer 1

Inventory in hand with Kelly Berhad purchased from Public Berhad   = RM 20,000
Inventory in transit with Kelly Berhad purchased from Public Berhad = RM 10,000
Therefore, Total inventory purchased by KB from PB   = RM 30,000

Profit Margin = 30% (Assumed on Sales Price)

So, Unrealised profit in inventory = 30% of RM 30,000 = RM 9,000

Inventory to be shown in Consolidated Statement of Financial Position:

Inventory of Public Berhad = RM   90,000
Inventory of Kelly Berhand = RM 160,000
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                                                RM 250,000
Less: Unrealised Profit in Inventory      RM     9,000
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Therefore, Inventory value                  RM 241,000
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