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Hi Mikelittle,
2009 Dec Q1
when it calculates the post acquisition profit of Salva and finance cost, it add back the 2000 to the finance cost then accrue the 1000 evenly during the year. I found this reasonable.
However, when I did 2011 Jun Q1, I calculated group revenue like this (450+(240-40)*6/12), I also use this method to calculate the cost of sales of Sentinel to be included in the group cost of sales(110-30)*6/12. But these are clearly not correct.
In both questions it said all items in the above statements are deemed to accrue evenly over the year unless otherwise indicated.
So I think in the first question, the 2000 finance cost happened after the acquisition, in the second question the intra-group sale also happened after acquisition. Why we cannot treat the revenue & cost of sales in the second question using the way indicated in the first question when dealing with finance cost and after acquisition profit of Salva??
ThanksBecause who is to say that there was not an equivalent sale to someone else in the pre-acquisition period. There’s nothing in the question to suggest that this is a time-apportionable sale
In Salva, the loan upon which the $2,000 was paid is clearly a post-acquisition created liability so the interest must be entirely post acquisition.
But if I were to say (made-up figures) that sales in the year were $600,000 and then allocate them $300,000 pre-acquisition and $300,000 post-acquisition (OK so far?) and then say that in the post acquisition sales of $300,000 was $60,000 to the parent, why would you want to reallocate
But that is exactly what you are trying to do!
OK?
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