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PlanK Co Strip CO
Finance Cost 12000 14000
Plank Acquired Strip on 1 April 20×8.Finance Cost of Strip includes 5000 interest on loan made by Plank on 1April20X8.
CSPL for 30 September 20X8.(Question March July 2020 CBE).
Solution
Finance Cost =12000+14000*9/12+5000
But Why Not?Finance Cost = 12000+(14000-5000)*9/12
As finance cost of14000 includes finance cost accrued for 9months only.Hi,
The interest on the intra-group loan has arisen since the acquisition, so will need to be removed prior to pro-rating the finance cost as it is not for a 12-month period. Once the 5,000 has been removed then the remaining balance is the amount of finance costs incurred that have arisen over the 12-month period, this can then be pro-rated.
Thanks
Sir
Exactly what i am confused about
As you mentioned ,”Once the 5,000 has been removed then the remaining balance is the amount of finance costs incurred that have arisen over the 12-month period, this can then be pro-rated.”In the solution they have done
FC =12000 + (14000*9/12)-5000
Shouldnt it be
=12000 + (14000-5000)*9/12 ??Hi,
It is because the 5,000 has only arisen after the acquisition date and is for the 9 months only. It therefore does not need to be pro-rated.
Thanks
Sry sir ..I’m still not getting your point ..I get it 5000 is the finance costs in the post acquistion period but 14000 finance costs includes the post acquistion interest..right?
So shouldnt we deduct 5000 and then pro rate it to find the actual interest after post acquisition?
Pls help
Thanks
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