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Consolidation question from that interim dec 08 paper,
date of acq: 1 July 2007
reporting date: 30 June 2008Borough High Street
Interest 10,000 (10,000) –
During the year Borough gave high substantial loans, most of was repaid shortly before the yr end. The final balance of $5000 was paid on 10 July 2008. The interest charged in the High’s Income statement and the interest receivable in Borough’s Income statement represents interest on this loan,It asked to construct income statement n b/sheet,
for that loan adjustment, the interest received and finance cost should be eliminated in consolidated IS?am i Rgt?
But i dnt knw wat adjustment should be made with regards to the loan in bsheet?please guide meIf I have understood your question correctly, then yes, the interest receivable and payable will cancel on consolidation. But so too with the value of the loan receivable and payable.
Does that answer it?
It partly answers it..the interest of 10,000 will cancel each other in consolidated IS..we both agree on that but is there any adjustment or anythg to do with that remaing 5000 that was paid after reportg yr..should it go somewhere in consolidated bsheet?
No – and if it did, it would cancel. Borough must have an outstanding receivable of 5,000 and High Street must have an outstanding payable of the same amount. And they cancel.
I suppose it’s possible that I have misunderstood your question and that High Street has paid the 5,000 but Borough hasn’t received it until after the year end. If that’s the case, it’s 5,000 cash in transit and, at the year end, Borough will still be showing a receivable of 5,000 but High Street will have a zero balance shown as owing to Borough.
So, in Borough’s records, Dr Cash and Credit the High Street Receivable with 5,000.
Now there’s neither a receivable nor a payable to cancel
Maybe that answers it for you?
from the 1st part of your reply, say you have when consolidatg bsheet u have for receivables 8000+1000
and payables 9000+1000…should i decuct 5000 from both of these 2 adjustments?Say in Parent we have receivables of 33,000 and in Subsidiary we have receivables of 48,000
In Parent we have cash 16,000 and in Subsidiary we have cash 14,000
In Parent we have payables of 22,000 and in Subsidiary we have payables of 24,000
In Parent’s receivables is 5,000 receivable from Subsidiary but Subsidiary has already paid 2,000 of that amount which has not yet been received by Parent
In Parent, Dr Cash and Credit Receivables 2,000
That now leaves 3,000 in Parent receivable from Subsidiary and takes Receivables now down to 33,000 – 2,000 = 31,000
Now cancel the remaining 3,000 intra-group balance by reducing both receivables and payables by the 3,000
So, in your answer in the exam you should find:
“Receivables ( 33,000 – 2,000 – 3,000 + 48,000 ) 76,000” and
“Cash ( 16,000 + 2,000 + 14,000 ) 32,000” and
“Payables ( 22,000 + 24,000 – 3,000 ) 43,000”
Is that better?
yes much better and clearer..a last clarification though..in the original scenario i asked u, the final balance of 5000 was paid after on 10th july..after the yr end..which means that it was still owing balance at the yr end rgt? so using your figures then the final answer would be
Receivables 33000+48000-5000
Payables 22000+24000-5000please confirm
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thanks a lot sir (mike)
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