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Hello sir, I have problem in answering Plank question for March June 2020 past exam.
The interest is receivable after the acquisition. Isn’t if there is mid year acquisition, the interest receivables need to be excluded from the subsidiary’ finance cost, then we time apportioned it ?The question is like this , company year end is 31 December 20X8 and parent acquired subsidiary on 1 April 20X8.
Parents has $12million finance cost and subsidiary has $14million finance cost.
The finance cost of subsidiary is also included $5M interest receivable on a loan made by parents Co on 1 April 20X8My answer would be like this
The interest receivables is $5million.
Total finance cost for subsidiary is 14000.
The interest charge without the parent loan would be $9million.
9 months of this would be $6.75 million and this is the figure that would beincluded within the consolidated financial statement.Could you clarify me why the answer just include all the finance cost (12M + 14M (9/12) ) and later on, exclude the $5 Million? Thank you, your response is much appreciated.
Hi,
The issue is that the $14 million has arisen for 12 months, whereas the $5 million intra-group interest has been incurred since the acquisition date of 1 April, so for 9 months only. Because of this you need to pro-rate the finance cost first, ignoring the intra-group aspect, so that you have the right figure for the finance costs since the acquisition date when we gained control.
what you have done is to deduct a figure that is for 9 months from a figure which is 12 months and that is not going to work.
Thanks
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