F7 Dec 2003 Q1 Highmoor note (ii) - why interest income is not being canceled?

TTomasz12y ago

Hello, According to note (ii) we accelerate payment of loan+interests by: Dr. Cash 9 Cr Investment 5 Cr. Receivables 4 But it is stated that Highmoor had accrued interest income in its books (which is intercompany). Don't we have to cancel it by?: Dr. R.E. of H (Interests income) 4 Cr. R.E. of S (Interest costs) 4 ? As I understand the issue it would lead to different allocation of R.E and NCI in CSOFP. This issue is ignored as well in Kaplan as here on opentuition lecture. Please help, Regards, Tomasz

MMikeLittleTutor12y ago#1

So far as each company is concerned, their entries are correct. For the purposes of the consolidated statement of income, there would need to be cancellation of the finance income against the appropriate amount of the finance expense. But for the purposes of the statement of financial position and the calculation of working W3 Consolidated Retained Earnings, we take:- Hs own + H's share of S post-acq retained - Goodwill impaired since acquisition (just our share) No mention there of cancellation, is there? OK?

TTomasz12y ago#2

OK:) I must have been tired yesterday... Intercompany trading does not influence R.E., only unrealised profit should be corrected against inventory. NCI should also be in the amount of "minorities" profit/loss without intercompany corrections. Yesterday I had much different point of view don't know why now:) Thank you for help! Regards, Tomasz

MMikeLittleTutor12y ago#3

You're welcome. Better to make your mistakes this week than next!

TTomasz12y ago#4

BTW Great lectures! I think I will switch into opentuition when learning for a next paper

MMikeLittleTutor12y ago#5

Good idea! :-)