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A acquired a 60% holding in B on 1 July 20X6. At this date, A gave B a $500,000 8% loan. The
interest on the loan has been accounted for correctly in the individual financial statements.
The totals for finance costs for the year to 31 December 20X6 in the individual financial
statements are shown below.
A 200,000
B 70,000What are consolidated finance costs for the year to 31 December 20X6?
A $215,000
B $225,000
C $230,000
D $250,000According to me answer should be $ 215,000
(200k) + (70k/2) – (500k * 8% * 6/12)But as per exam kit its (b) 225,000
They are right.
First, B’s finance cost has both the 12-month and the 6-month component.
The 6-month component is an intra group balance and so has to be eliminated.
It is 20,000 as you computer it above.
The remaining finance cost is 50,000 exclusive of intra group (GOOD) but for 12 months (BAD).
Apportion it over 6 months as
50,000×6/12=25,000Lastly, sum up the two(A and B) as
200,000+25,000
=$225,000
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