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- August 16, 2023 at 4:25 pm #690041
A acquired a 60% holding in B in July 2016. At this date, A gave B a $500,000 8% loan. The interest on the loan has been accounted for correctly in the individual financial statements. The totals for finance costs for the year to 31 December 2016 in the individual financial statement are below
A $200,000
B $70,000The answer is $225,000 which I don’t understand. Kaplan answer goes like this
The finance cost for the subsidiary must be time apportioned for six months, as A has only owned them for that period of time. Also the intra-group interest must be split out. The intra-group interest would not have existed in the first half of the year, as the loan was only given to B in July.
The intra-group interest for the second 6 months would have been $20,000 ($500,000 * 8% / (6/12))
Without this, B’s finance costs would have been $50,000 for the year (I don’t understand where this figure comes from??)Splitting this evenly across the year would mean that $25,000 was incurred in each six month period.
Therefore the total finance cost would be $200,000 + $25,000
Can you help me understand where the $50,000 figure is coming from?
August 22, 2023 at 3:11 pm #690459Hi,
The $50,000 figure is the $70,000 total finance cost that has been recorded in the subsidiary’s accounts, less the $20,000 finance cost in relation to the 8% loan for 6 months.
Thanks
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