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Hi Sir,
When there is intra group loan interest, the adjustment entries are:
Dr Interest income (RE of P)
Cr Interest expense (RE of S)
Is this correct?
In BPP, it is said that the entries are:
Dr Interest income (Group)
Cr Interest expense (Group)The question from BPP is like this:
Brigham Co has owned 70% of Dorset Co for many years. It also holds a $5 million 8% loan
note from Dorset Co. The financial statements of Dorset Co show a profit for the year ended 31
December 20X6 of $1.3 million. Calculate Profit attributable to NCI
Here is my answer:
Profit of S = 1,300,000
Intra finance expense = 400,000
Profit attributable to NCI = (1,300,000+400,000)*30% = 510,000
Is my answer correct?Hi,
The adjustment for the intra-group interest is one done on consolidation, i.e. in the group accounts. Hence the information in BPP’s materials is correct. We do not adjust the individual accounts of the parent or subsidiary. This is done in a similar way to when we adjust for intra-group trading, where we adjust the revenue and cost of sales of the group.
As the adjustment is a group adjustment and no adjustment to the individual accounts, the NCI is 30% of the 1,300,000. We do not need to make any adjustment for the 400,000 intra-group interest.
Thanks.
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