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Hello sir. hope u are well.
Sir how to deal this note extract from long consolidated SFP
Highveldt Co, a public listed company, acquired 75% of Samson Co’s ordinary shares on 1 April 20X4
Included in Highveldt Co’s investments is a loan of $60 million made to Samson Co at the date of acquisition. Interest is payable annually in arrears. Samson Co paid the interest due for the year on 31 March 20X5, but Highveldt Co did not receive this until after the year end. Highveldt Co has not accounted for the accrued interest from Samson Co.
Non-current liability. P S
10% intragroup loan (note (ii)) Nil 60M
As per kit Answer
reduce 6 from the P’s RE and do nothing to S,s REin my point of view, we cancel the The loan / interest Receivable and loan / interest payable that is straight forward. but difficult part is how to deal the inter company interest in the SFP Retained earning part. Why not to fix cash in transit first DR. Cash CR. Interest Income, and then cancel the interest paid and interest income DR. interest income (P’S RE) CR interest paid (S’s post aqua’ RE).
help me sir where am i getting wrong.
Hi,
Before any intra-group adjustments are made we need to get the accounts of the individual companies correct first. As Highveldt has not accounted for the interest then we need to account for it in the accounts of the parent (DR Interest receivable CR Interest income).
On the SFP the interest receivable is removed but there is no corresponding entry to remove from S’s accounts as it was paid in cash, so we need to take the entry to the group retained earnings, hence the deduction to P’s RE (effectively removing the interest income as it is intra-group).
Thanks
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