Question: Purple Co acquired 70% of the voting share capital of Silver Co on 1 October2011.The following extracts are from the individual income statements of the twocompanies for the year ended 30 September 2012:Purple Co$Silver Co$Revenue79,30029,900Cost of sales(54,990)(17,940)Gross Profit24,31011,960Purple Co had made sales to Silver Co during the year of $5,000. Purple Cohad originally purchased the goods at a cost of $4,000. Half of these itemsremained in inventory at the year end. What should be the consolidated revenue for the year ended 30 September2012?
Also could you please help me understand why in the determination of unreleased profits we use Dr COGS 500, Cr inventory 500, instead of Dr Sales 500, Cr inventory 500. I real don't understand why we increase cost of goods sold and decrease inventory?, I understand that we must add back the unreleased profits to cost of goods sold to make it equals to the revenue we eliminated, but if so, why do we reduce the inventory account? If we have eliminated the revenue we made, why inventory account is reduce instead of increasing it? Please help me to understand this. Thank you in advance.