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Hi Mr Mike, I have a question concerning with investing loan note of Sco after acquisition by Pco.
For instance, If I acquire Sco, and after that if I invest loan note of Sco, why do I add loan note’s interest over Sco’s profit for the year?
For instance,loan note is 50million 8% and its finance will be 4000 and i have to add it over Sco’s profit for the year say for instance profit for the year 12000
It reminds me the question which related to borrowing cost capitalised and we added it over Sco’s profit for the year.
Usually, if we invest loan note of Sco, it is a finance cost and it should reduce the amount of Sco;s profit for the year because it is not the same as borrowing cost capitalisation as previous question i asked.
Have you tried the comprehensive example Ausra and Danute from the free course notes, chapter 9?
In that example there is an issue with time apportionment because one particular figure related purely to the post-acquisition period so the year’s profits could not be split simply on a monthly basis
This issue that you have identified seems to me to be the same problem – that loan interest that has been included as an expense in S results relates purely to the post-acquisition period
So if we add it back to the results for the year, then time apportion, and then deduct it again from the post-acquisition split, then you’ll arrive at the correct results apportionment
Does that answer it?
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