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accountg yr ended 30 sep x12
on 1 april x12 P made a loan of $ 8000 to S that carried an actual and effective rate of 10% per annum. The interest to 30 sep x12 on this loan has been paid by S and accounted by both companies. P acquired 60% of sc of S on 1 April x12. S also paid a dividend of 1000 on 1 sep x12
SOCI ended 30 sep x12
P S
Operatg profit 19900 2000
Invest income 1200 0
Finance cost ( 840) (400)
PBT 20260 1600
Tax (8400) (400)
Prof for yr 11860 1200Bsheet At 30 sep x12
RE 40000 12600Please Sir, I have checked the answers from acca kaplan mock 2012 but i got different ones for these
1. Retained earngs of S at acq and post acq profit
2.cal group fcost
3.cal of group investment incomeI really wana knw your answer because i have thoroughly analysed this question and applied the principle used in pandar.Thanks a lot sir in advance. i think i have given all the relevant info required
ohh i think i missed u by just a few minutes:(…nevermind…c u soon sir ..have a good weekend
n apologies sir the format of the figures got distorted a little bit wen i pressed but it still is clear i thk that 1st fig on left is p and 2nd one is for S. just saw the distortion sorry
I think the issue here is the time apportionment of the profits for the subsidiary in the year of acquisition and the cancellation of the intra-group items
At the date of acquisition the SNet Assets were Share capital + retained earnings brought forward ((12,600 – (1,200 – 1,000 div )) 12,400 + retained earnings for 6 months to date of acquisition. For this figure we need to split the operating profit into 1,000 / 1,000, split the finance costs into 0 / 400 and that gives a profit split of 1,000 / 600. Now split tax into 200 / 200 so profit after tax for the 6 months to date of acquisition becomes 800 and post acquisition becomes 400Group finance costs are 840 + post acq S finance cost of 400 – but the 400 then cancels against 400 investment income in Parent. Total group finance costs are therefore 840
Investment income according to the question is 1,200. But we have just cancelled 400 of that as being loan interest received from a group company and that leaves just 800. Included within that 800 is also the dividend received by the parent from the subsidiary and that equates to 60% x 1,000 = 600. That 600 needs to be eliminated from investment income when we are preparing the Statement of Income for the Group and that therefore leaves just 200 to be shown in the Group Consolidated Statement of Income.
Does that agree with either of the answers you have looked at?
Hope so!
The fcost and investment income i got same as u and the answer also says the same..we all happy on that with the same logic..
from my workg
i added int loan back to PAT 1200+400= 1600(to avoid tax bit,examiner used that principle in pandar i think)… pre acq pro 800 and post act profit 800- the 400 interest =400…do u approve my method this leaves me with retained earngs 12600-400=12200 at acq…does ur RE at date of dat also becomes 12200 because you havent given me ur final figure although i thk it will be 12200….
the answer which nw i believe is wrong..ignored the loan completely n 12600-6/12 x 1200=12000 for RE at acq which makes me vangry indeed..thats why ur expert advise is so helpful..
why did u calculate?
“At the date of acquisition the SNet Assets were Share capital + retained earnings brought forward ((12,600 – (1,200 – 1,000 div )) 12,400 + retained earnings for 6 months to date of acquisition.”i am thinkg if u r given RE at reportg date(12600) simply deductg the post acq profit which we both agree on is 400=12200 which gives RE at acq …
Agreed – but, whenever I’m faced with finding Retained earnings at date of acquisition in a mid-year acquisition question, I ALWAYS show Retained Earnings brought forward + the Retained Earnings for the pre-acquisition months of this year
ok coool but am lookg at your method 12600-1200+1000=12400+ ? is it 800(pre acq pro)..it doesnt give the 12200 that i got does it?
basically we both agree on pre acq profit=800 n post=400
nw ur method to determine the RE at acq 12600-1200+1000 which i see the logic then u add the 800 pre acq?
but that doesnt become the 12200 i got by deductg 12600 from 4000 to give Re of 12200 at acq…From ur method, ignorg the dividend of 1000..12600-1200=11400 + 800 pre acq gives same answer as mine..i have gone further to apply ur method to pandar..to find RE bf from 173000 RE at R.date..174-21which is PAT..which gives 152 there adding the 11.5 pre acq profit gives 163.5 even there, therefore the dividend was ignored wen calculatg the RE b/f, i hope you see my point
oupps i meant 173-21 in my previous post…lookg eagerly to hear ur reply sir to clear all those doubts..thxx a lot in davance
hi sir,just a little bit stressed sir that u might forget in replyg if too many posts gets accumulated later on.please dnt forget to reply me whenever u can:) ur help means a lot to all of us
It shouldn’t make any difference to finding retained earnings at date of acquisition whether you find brought forward and add on pre-acq time apportioned this year or whether you find carried forward and deduct post acq time apportioned this year.
It has to come to the same figure
ok agreed but the dividend of 1000 is the difference btw the 2 methods for some reasons i ignore, why is that?
“I think the issue here is the time apportionment of the profits for the subsidiary in the year of acquisition and the cancellation of the intra-group items
At the date of acquisition the SNet Assets were Share capital + retained earnings brought forward ((12,600 – (1,200 – 1,000 div )) 12,400 + retained earnings for 6 months to date of acquisition. For this figure we need to split the operating profit into 1,000 / 1,000, split the finance costs into 0 / 400 and that gives a profit split of 1,000 / 600. Now split tax into 200 / 200 so profit after tax for the 6 months to date of acquisition becomes 800 and post acquisition becomes 400”- ur statementfrom ur method 12400+ pre acq prof of 800=13200 which is ur fig for RE at acq rgt? nw compare this with the bsheet fig at reportg date which is 12600…deductg the 2 should give the post acq profit fig..it gives a loss as u can see which i believe is not good, a loss of-600? where as from ur method still, if i ignore dividend as i suggested, RE bf 12600-PAt 1200(ignore div of 1000)=11400+ the 800=12200 vs RE at bsheet date 12600 which gives me the post acq profit of 400 which i believe nw is correct..wat do u thk please? i hope u see my point now. i thk we should ignore the dividend…n take that into account for IS issues..
But has the dividend been accounted for this year? If not, then the profits brought forward will simply be 12,600 – 1,200 = 11,400.
Add to that the pre-acq element of this year of 1,000 and that gives us 12,400 as at date of acquisition
This is all very difficult without me having the question in front of me! And sitting in an airport departure lounge is hardly conducive to me opening the ACCA past exam questions – particularly since the ACCA appears to have rearranged their home page so I now struggle to find “past exams”
However, from reading your post again, the question appears to revolve around the treatment of the dividend. Has it been accounted for and which year does it relate to?
1.it doesnt say the dividend has been accounted,it just says s paid a dividend on 1 sep x12 in note 3… so i dnt thk it was accounted..so no need to add it back we agree on that?
2. pre acq element of the yr was 800( not 1000) to 11400 which gives us 12200…we agree on that?
3.which is the same fig as me takg RE at reportg date 12600 and deductg post acq element of 400 givg Re at acq of 12200do you agree to 1.,2. and 3?:) and am sincerely sorry for being a bit pushy, i guess its the stress and udnerstd ur situation at the airport
You appear to have answered it! We seem to agree on the detail of this latest post and I’m now looking out of the airport departure lounge at a very heavy rainstorm and thinking what a pleasant flight I am going to enjoy. It looks like it’s going to be a white knuckle ride!
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