Guys, I posted this in the general discussions board by accident. I don’t understand the below! quote: In proportionate consolidation, you have to view the intra-compnay transactions of revnues and cogs. The way to view it is revenues for X also forms cogs for the JV and vice versa. Hence the need to adjust the proportionate consolidation for the JV by the revenues and cogs of the JV. Example: Co. X owns 25% of JV and buys 30% of JV’s products. X JV Prop. Consolidation Sales 1000 600 1000+ (0.25*600) - (0.25 *0.3*600) COGS 800 400 800 + (0.25*400) - (0.25*0.3*600) End Quote. If we changed the assumption to say that CO.x now buys 100% of JV’s products, then logically sales should remain unchanged for CO.x Sales = 1000 + (0.25 *600) - (0.25 * 1 * 600) = 1000 (Unchanged) But COGS now changes?! Cogs = 800 + (0.25 *400) - (0.25 * 1 * 600 ) = 900 - 150 = 750 (CHANGED?!) How can COGS change from 800 to 750??!
spud99 Wrote: ------------------------------------------------------- > But COGS now changes?! > > Cogs = 800 + (0.25 *400) - (0.25 * 1 * 600 ) = 900 > - 150 = 750 (CHANGED?!) > > How can COGS change from 800 to 750??! From what I see: Of the $400 of COGS that the sub had, $600 of COGS is inter-company transfer. So, excluding intercompany transfers, COGS was actually an INCOME of $200 I hope you get my point. If not, I’ll tell you in plain english: These numbers are fishy, they may work in an academic context, but in reality, the sub would have to combine some items that don’t belong there (income) into COGS in order to get these numbers.
spud I wrote my thinking on the other thread on this forum