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June 2012 Q1 Pyramid retained earning

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › June 2012 Q1 Pyramid retained earning

  • This topic has 6 replies, 3 voices, and was last updated 11 years ago by MikeLittle.
Viewing 7 posts - 1 through 7 (of 7 total)
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  • April 22, 2014 at 5:35 pm #165921
    pagermm
    Member
    • Topics: 13
    • Replies: 13
    • ☆

    Hello,

    (ii) immediately after the acquisition, Square issued $4 million of 11 % loan notes, $ 2.5 million of which were bought by Pyramid. All interest due on the loan notes as at 31 Mar 2012 has been paid and received.

    the answer to this question provided on ACCA page, does not cancel the interests on the loan notes of 275 and gives therefore different values of NCI – 8,480 and Retained Earnings – 36,380,

    which approach is correct then…?

    April 22, 2014 at 6:54 pm #165925
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    The cancellation of 275,000 is a “consolidation adjustment” ie it doesn’t affect the retained earnings calculation. It merely affects the consolidated statement of income by reducing the interest expense and the interest income on consolidation by the same amount of 275,000

    No adjustment is made to the statement of income of the subsidiary – so far as the nci is concerned, the subsidiary actually does have an interest expense of 11% x 4m = 440,000

    Is that ok?

    April 23, 2014 at 2:44 am #165954
    pagermm
    Member
    • Topics: 13
    • Replies: 13
    • ☆

    Thanks. If the question changes to All interest due on the loan notes as at 31 Mar 2012 has NOT been paid and received.

    Does it change anything?

    For my understanding, for retained earning, it means not recorded at P, S’ book. So we need to adjust amount 275,000 ?

    April 23, 2014 at 8:09 am #165963
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    In S, they would need to accrue the full amount of the interest payable (Dr Interest Expense, Cr Accruals) and in P they would need to acknowledge the interest receivable (Dr Receivables, Cr Investment Income)

    Then cancel the 275,000 receivable against 275,000 of the 440,000 payable

    So, in summary, if S has not recorded the interest payable at all, and therefore P also has not recorded the receivability of 275,000, we need to put the correcting entries through to record fully the payable and the receivable, and then cancel

    OK?

    April 25, 2014 at 8:45 pm #166323
    greg
    Member
    • Topics: 5
    • Replies: 8
    • ☆

    In its answer , BPP does not take pre aqn profit off Square’s in the Consolidated Retained Earnings working. Why?

    April 26, 2014 at 7:50 am #166354
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    Yes they have – it’s just that you can’t see it! It’s not possible to prepare a working W3 Consolidated Retained Earnings without adjusting for the subsidiary’s pre-acquisition retained earnings.

    Have another look and, if you still cannot see what they have done in the printed solution, post again.

    However, be aware that I do not have available the BPP texts

    April 26, 2014 at 7:50 am #166355
    MikeLittle
    Keymaster
    • Topics: 27
    • Replies: 23309
    • ☆☆☆☆☆

    Besides, there’s a recording of my answer on this site isn’t there?

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