Difference in one question between BPP Kit 2018 and the previous versions

NNguyen7y ago

Dear Sir, I’ve found that there is a difference between 2 question ( Question 108 from BPP Kit before 2018 and Question 123 from BPP Kit 2018). With the same question as below: On 1 July 20X7, Spider acquired 60% of the equity share capital of Fly and on that date made a $10 million loan to Fly at a rate of 8% per annum. What will be the effect on group retained earnings at the year end date of 31 December 20X7 when this intragroup transaction is cancelled? A Group retained earnings will increase by $400,000. B Group retained earnings will be reduced by $240,000. C Group retained earnings will be reduced by $160,000. D There will be no effect on group retained earnings. (2 marks) However, there are 2 answers as follows: 1. Question 108 from BPP Kit before 2018, the answer is C Loss of investment income(10m × 8% × 6/12) (400) Saving of interest payable (400 × 60%) 240 Net reduction in group retained earnings (160) 2. Question 123 from BPP Kit 2018, the answer is D There will be no effect on group retained earnings Loss of investment income(10m × 8% × 6/12) (400) Saving of interest payable 400 Could you please help me to show where is true answer. Or is there any updated in consolidated method. Thank you Sir.

PP2-D2Tutor7y ago#1

Hi, It looks like the original answer was incorrect, particularly with reference to the saving on interest payable at 240. The loan will charge interest at 8% on the $10m, so $800,000 per annum, however the loan is only 6 months old so we pro-rate it by 6/12 to give $400,000. There will be interest income in the parent's books and interest expense in the subsidiary's books, which then net-off to nil and hence no impact on group retained earnings. Thanks