Goodwill Q8 Mini Exercise – Question

Thanks for pointing this out – I’m so surprised that no-one else has noticed it!

At the bottom of page 251 there is a note that says “Immediately after the acquisition the parent invested $50 million in an 8% loan note issued by S”

This should have been part of the question! Not part of the answer

To find the pre-acquisition element of this year’s profits we need to make the following adjustment.

Half a year’s loan note interest is 8% x $50,000,000 x 6/12 = $2,000,000

This amount relates entirely to the post acquisition period so is not a simple 50/50 time allocated amount

So … add back the $2,000,000 to find the pre-loan-interest profit for the year …

… take half of that as pre-acquisition and half as post-acquisition and then …

… deduct the $2,000,000 from the post-acquisition half of the split profit

OK now?

‘I am litlle bit confused how profit from investment in bank loans is not reflected in profit at the 30 sep 2009’

I’m totally confused! What are you talking about?

And what’s this word? ‘conaist’ It looks like it’s trying to be ‘consist’ but ‘consist’ doesn’t make sense in the context

Let me know please what it is that you’re asking

‘I suppose that interest income from bank loan’

What bank loan? Where have you found a bank loan?

S borrowed $50 million from P immediately after acquisition – there’s no mention of any bank being involved!

The $2,000,000 interest paid for the half year since acquisition up to the year end IS IN FACT accounted for in the $21,000 year’s profit for S and adjusted for when trying to find the pre-acquisition profits – but that’s where we started this thread!

Well, that’s a relief!