FAC3704 Assignment 2 (Exceptional Answers) Due 2025

FAC3704
Assignment 2
(Exceptional Answers)
Due 2025

, FAC3704
Assignment 2
June 2025


Ocean Ltd Group Financial Statements
1 Part (a): Pro Forma Journal Entries for Intragroup
Transactions
This section prepares the pro forma journal entries to account for intragroup
transactions as per additional information points 3 and 4, eliminating
unrealized profits and adjusting for intragroup sales.


1.1 Intragroup Transaction 1: Ocean Ltd’s Purchase from Yachts
Ltd
Ocean Ltd purchased inventory worth R4,257,000 from Yachts Ltd, which
applies a 25% profit mark-up on cost price. On 28 February 2025, Ocean Ltd
held R644,625 of this inventory. The unrealized profit is eliminated per IFRS 10
and IAS 28.
Calculation of Unrealized Profit:

• Profit mark-up is 25% on cost, so selling price = 125% of cost.

• Let cost price = C. Then, selling price = 1.25C.

• Profit = 0. .

• Unrealized profit = 20% × 644,625 = 128,925.

Journal Entry 1:

Account Debit (R) Credit (R)
Revenue 4,257,000
Cost of sales 4,257,000

Table 1: To eliminate intragroup sales revenue and cost of sales between Ocean
Ltd and Yachts Ltd.

Journal Entry 2:

Account Debit (R) Credit (R) Cost of sales 128,925
Inventories 128,925

Table 2: To eliminate unrealized profit in closing inventory purchased by Ocean
Ltd from Yachts Ltd.


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