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Hey. I’m a bit confused. I am doing the Test your understanding 2 [chapter 1, Kaplan] where the Parent has given a loan to a subsidiary and there’s an income and expense charge in the financial statements. My question is, shouldn’t the Interest be charged to the subsidiary’s account be added back in Working 2 and deducted from parent’s retained earnings to be completely eliminated? In the Kaplan solution, they have cancelled the interest entry in the profit or loss account but have not done any adjustments to Retained earnings figure of the two.
What is the treatment? Thank you.
I can’t see what Kaplan has done because I dont have the P2 study text available.
However, cancellation of interest received / paid within a group is a consolidation adjustment only for the Consolidated Statement of Profit or Loss ie, it’s a presentation adjustment. We cannot show as income and expense value receivable and payable within the group
When we are considering the Statement of Financial position, however, there is no cancellation by way of add backs to the separate companies’ retained earnings. The reason is that the interest IS an expense of the borrowing company and is correctly deducted in arriving at that company’s profit or loss for the year
Similarly, the interest received IS an income for the lending company and is correctly included as an income for that company.
Cancellation is for presentation purposes – there’s no debits nor credits put through either company’s records
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Hi Nimrahjk,
I read the advice you gave on OBU RAP. I did Topic 8 in Period 32 but was unable to pass due to failing on Evaluation of info, analysis and conclusion. I also failed on Referencing and info gathering. It is rather disheartening that my mentor was quite unresponsive and offered little help. In the end, despite a great deal of self-effort, I could not obtain a pass as my financial analysis turned out to be weak and the marker pointed out a lack of referencing to external sources there as well.
I felt hopeful when I saw that you offered to share your notes and materials and would like to know if you could kindly share them with me by sending them to my email? Username/local part is glitz_jem. Email domain is yahoo.com
I really hope you could respond. Thank you very much.
Hi Nimrahjk,
I read your article on OBU RAP. Could you please assist me further with your notes and materials? My email address is:
robert28788@yahoo.com
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