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Can someone please help me with the calculation for deferred cash (why divide by 1.10, where is the 10%) and specifically unrolling the discount (ans: £1,750) in the Consolidated Retained Earnings – 2 years but where is the % interest?
Thank you.Hi
You’re correct – I haven’t included the cost of capital for Ausra.
I’ll try to get admin to correct the omission but, meanwhile, can you use 10% as Ausra’s cost of capital and see if you can now work it out?
If not, post again
@MikeLittle, thank you very much for your response.
I think I’ve got it. $3,000 is the difference between the pv of the deferred consideration at acquisition ($30,000) and the deferred consideration @ reporting date ($33,000) using 10%, 2years. 7/12ths is post acqui of $1,750. In the SOFP, deferred consideration of $31,750 is £30,000 + $3,000 less the pre-acqui (5/12ths of £3,000).
I very much appreciate the time you are spending helping us out.
God bless
Hi – you’re correct up to the very last bit – the 5/12 is not pre-acquisition. The unrolled amount is $3,000 x 7/12 = $1,750. It’s got nothing to do with pre-acquisition. Otherwise, you’re correct
Hello,
can you please explain how you calculated PV of deferred consideration at reporting date (31 Oct 2011)? you just multiplied 30.000 on 1,1? and then 33.000-30.000=3.000 you apportioned to RE by multiplying on 7/12?
I’m not sure if I’ve got logic of this calculation.
Can you please help.
Thank you a lot!
EvgeniiaIf it had been a full year of unrolling, the amount of the finance charge in the statement of profit or loss would have been $3,000
But it wasn’t a full year. Only 7 months have passed since date of acquisition up to the date of the accounting year end. So time apportion the full year’s charge to account for only those 7 post-acquisition months
Strictly you could argue that the full year of $3,000 finance charge should not be unrolled linearly but there’s no way that that exercise would ever be asked!
Is that better?
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