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Intra group interest on loan note

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Intra group interest on loan note

  • This topic has 3 replies, 2 voices, and was last updated 7 years ago by MikeLittle.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • April 27, 2018 at 4:15 pm #449106
    drishti1234
    Member
    • Topics: 13
    • Replies: 9
    • ☆

    Sir,
    When subsidiary sells loan notes to parent, why do we add interest on loan notes in subsidiary’s post acquisition profit while calculating NCI for statement of profit /loss?

    Thankyou.

    April 27, 2018 at 6:46 pm #449130
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    What’s the name of the question? To be honest, I’m not clear exactly what you mean “why do we add interest on loan notes”

    ie – where is this interest added and to what is it added?

    April 27, 2018 at 6:56 pm #449134
    drishti1234
    Member
    • Topics: 13
    • Replies: 9
    • ☆

    Sir,
    Question name is Pandar, Kaplan exam kit.
    The question asked us to prepare SPL, we are given that Parent invested 5000 8% loan notes from Subsidiary.
    while calculating NCI for attribution, the 8% interest on loan notes is added to subsidiary’s post acquisition profit, and also this interest is reduced from finance cost.
    Why are we doing this?

    April 27, 2018 at 11:02 pm #449136
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23321
    • ☆☆☆☆☆

    When we are deciding how much of the subsidiary’s profits have been achieved post-acquisition, the ‘normal’ assumption is that revenues and expenses (ie profits) have accrued evenly throughout the year

    However … sometimes we are told that there is a revenue item or an element of expense that is specifically attributable to either the pre- or the post-acquisition period … and that’s what we have with Pandar and Salva

    We know from the question that the Salva year’s profits are $21 and that the acquisition took place half way through the year

    So our natural instinct is to say “Ah 6/12 * profits is pre-acquisition and 6/12 is post-acquisition

    But the loan interest recorded by Salva is related ONLY to the post acquisition period so profit has NOT accrued evenly

    So take the year’s profits of $21, add back the loan interest to find the pre-loan interest profit for the year, split that figure on a 50 / 50 basis and then deduct the loan interest from the second half-year’s profit

    Does that now make sense?

    OK?

    PS Have you watched the video where I work through the full Pandar question?

    It’s here:

    https://opentuition.com/acca/f7/acca-f7-revision-kit/

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Viewing 4 posts - 1 through 4 (of 4 total)
  • The topic ‘Intra group interest on loan note’ is closed to new replies.

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