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Hi,
On July 20X7, Spider Co acquired 60% of the equity share capital of Fly Co and on that date made a $10m loan ro Fly Co at a rate of 8% per annum.
What will be the effect on group retained earnings at the year end date of 31 December 20X7 when this intragroup transaction is cancelled?
Answer is:
There will be no effect on group retained earnings.I don’t understand how it is calculated.
Is it because they both cancelled each other out?
Dr Group finance income $400k
Cr Group finance costs $400kHow is it related to retained earnings?
Hi,
Yes, as there is the cancellation of an income related item and expense related item there is no impact on the profits and as profits feed into retained earnings, there will be no impact on the retained earnings.
Thanks
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