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On 1 July 20×7, Spider acquired 60% of the equity share capital of Fly and on that date made a 10mil loan to Fly at a rate of 8% per annum.
What will be the effect on group RE at year end 31/12/x7 when this intragroup transaction is cancelled?So the investment income lost would be 0.08% X 10m X6/12 = 0.4 million
What I don’t understand is how they account for saving of interest of 0.6 X 0.4m =240k
total impact on RE: 400 -240=160k
Please help!
Thanks in advance
A a result of the parent lending money to the subsidiary, the subsidiary’ profits have fallen by $400,000
If the subsidiary’s profits before finance charges has been, say, $3,000,000, the nci would have been entitled to their 40% share = $1,200,000
A a result of the loan and the loan interest expense, the subsidiary’s profits fall to $2,600,000 and the nci share of that is 40% x $2,600,000 = $1,040,000
That represents a fall in the amount attributable to the nci of $1,200,000 – $1,040,000 = a saving of $160,000
Is that better?
Yes, thank you, now I understood.
Have another quick one for you, please help!
Question no 110 from the new BPP kit.
I don’t understand how the unrealised profit is computed in this example. the wording is confusing!
Thanks!
This should be a new thread! It has nothing to do with the heading so I’m going to ask you to post again
second point … I don’t have the new BPP kit – I don’t even have the old BPP kit! So you’re going to have to give me the details
Remember, a new thread because it’s a new topic!
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