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Highveldt (BPP study book page 437)

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Highveldt (BPP study book page 437)

  • This topic has 1 reply, 2 voices, and was last updated 6 years ago by P2-D2.
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  • December 17, 2018 at 1:43 pm #492103
    yuska
    Member
    • Topics: 15
    • Replies: 11
    • ☆

    Dear Sir,

    My question is related Highveldt (BPP study book page 437) NOTE (II)

    Note(ii)- Included in Highveldts investments is a loan of $60m made to Samson at the date of acquisition (10% intercompany loan). interest is payable annually in arrears. Samson paid the interest due for the year on 31 March20X5 ,but Highveldt did not receive this until after the year end. Highveldt has not accounted for the accrued interest from Samson.

    In BPP study book, Retained earnings of Highveldt are increased in amount of 6 million (60*10%), and any adjustment is not made to Retained earnings of Samson .

    But I had increased 6 million Retained earnings of Samson, and not made any adjustment Retained earnings of Highveldt.

    My thoughts are like following:
    1) I think this transaction is intra-group transaction and this must not affect group results, because this loan is in between the parent and subsidiary (interest is not paid to outdoors):
    2) When Samson calculated 6 million interest, the amount was deducted from retained earnings
    DR interest expense CR Payable
    DR retained earnings CR interest expense

    Can you please explain this issue for me?

    December 17, 2018 at 6:19 pm #492133
    P2-D2
    Keymaster
    • Topics: 4
    • Replies: 7163
    • ☆☆☆☆☆

    Hi,

    The key is that Highveldt did not receive the cash interest until after the reporting date and so will not have accounted for it. If it hasn’t been accounted for it won’t be in the profits/retained earnings and therefore does not need to be removed.

    Thanks

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