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Hi Sir
Kindly explain what should be done for the following adjustment in the statement of P/L & SOFP:
Included in Highvelts investments is a loan of 60$m made to Samson at the date of acquisition.Interest payable annually in arrears.sampson paid the interest due for the year on 31 mar 20×5 but highvelt did not receive this until after the year end.Highvelt have not accounted for the accrued interest from samspson.Highvelt acquired 75% of Samsons ord shares on 1 April 20×4.Rate of int on loan 10%.
It’s a full year (1 April to 31 March) so interest in full is 10% x $60 million = $6 million
This has been paid by Samson just before the year end but Highveldt has not received it as at the year end
So we need to accelerate this cash in transit into the records of Highveldt
Dr Cash $6 million
Cr Investment Income $6 millionThis entry increases H’s retained earnings and current assets
At this stage, there has been no adjustment to Samson’s records
Now we need to cancel and these are NOT entries / adjustments that affect the records – they are simply consolidation adjustments for presentation purposes
In the cross addition for “Loan investments” eliminate the $60 million loan asset and in the cross addition for Loan liabilities remove the $60 million
When cross adding for the statement of profit or loss (into which we have just inserted the $6 million investment income) do not add in to that cross addition that $6 Investment Income and, similarly, ignore the equivalent finance cost Loan Interest $6 million
None of the above affects the 25% nci
OK?
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