Pander Amber Salva LOAN INTEREST

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    gutsychyk
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    Salva is 80% subsidary acquired in april 2009
    retained earings
    1oct 2008 152000
    oct 09 21000
    Immediately after its acquisition of Salva, Pandar invested $50 million in an 8% loan note from Salva. All
    interest accruing to 30 September 2009 had been accounted for by both companies. Salva also has other
    loans in issue at 30 September 2009.

    can u explain this point
    my understanding is, P paid for interest so 8% x 50000 x 6/12 = 2000
    this is added back in S’s profit making it 21000 + 2000 = 23000
    23000/2 = 11500 at acquisition (profit share) and 11500 ( at consolidation)

    its wrong that i know but i cant quite follow past papers explanation.
    can u help pls


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    gutsychyk
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    thanks mike, i got the answer for this in the forum explained by yourself. just an extension to this one :
    I am not getting finance part of comphresive income statement. can you please explain tht bit as well.
    in solution its somethin glike
    3000-2000 = 1000 x 6/12 + 2000 for salva


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    yanlingw
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    Me too, i was confused on that 2000 interest from P, i think it should already included in 21000, can you explain this bit please? thank you


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    gutsychyk
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    as for reserve: interest for 2000 from S to P was after acquisition . since we know it was mid year acquisition. had there been no loan issue, the profit would have been 21000+2000=23000. if we divide that by 2 (on the basis of mid yr acquisition), so before acquisition profit would be 11500 for pre aquisition and 11500 for post. and we know interest was paid post acquisition. that makes 11500 – 2000 = 9500.

    for finance cost:
    3000 for S.
    if there was no interest to be paid (assume) the cost would have been 1000 (3000-2000)
    1000/2 = 500 as we need for 6 months only
    however payment of 2000 was made in last months as well.
    so 2000+500 = 2500

    (u cant divide 3000/2 because the interest of 2000 was paid ONLY POST ACQUISITION not pre. so no share of 2000 should go in pre)

    hope u get it now :)


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    gutsychyk
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    @yanlingw said:
    Me too, i was confused on that 2000 interest from P, i think it should already included in 21000, can you explain this bit please? thank you

    and u r right, its already included in (adjusted ) in 21000. other wise the profit would have been 23000. now check my last post. should make sense


    Avatar of MikeLittle
    MikeLittle
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    Gutsy, you seem to have answered your own question – is there still a problem?


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    gutsychyk
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    no mikelittle, thanks. its am fine with this one now


    Avatar of MikeLittle
    MikeLittle
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    ok

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