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My dear Tutor, Please i really want to get to be paid attention to my weak point by you and want to get its understanding.
Last time i asked some questions relating to it but my another question will be comparision with loan note investing and interest on borroowing cost capitalisation.
Hi Tutor , I have question which has been taken from past paper 3 June 2015.
Cyclip ( i just show S co that is why i did not wite here P co because question relating to only Sco not Pco)CYClip
profit for the year(31 March 2015)-2400
Finance cost (300)Bycomb
Finance cost(400)Note
On 1 April 2014, Cyclip commenced the construction of a new production facility, financing this by a bank loan.Cyclip has followed the local GAAP in the country where it operates which prohibits the capitalisation of interest. Bycomb(Parent CO) has calculated that, in accordance with IAS 23 borrowing costs, interest of $100,000 (which accrued evenly throught the year) would have been capitalised at 31 march 2015.The production facility is still under construction as at 31 MArch 2015.
In the aswer note:Consolodated profit-2937
When we find profit attributable to
Owner of parent 2734
NCI-375
Profit for the year of Cyclip-2400+100(capitalised interest cost)=2500*9/12*20=375
depreciation(360*20)=(72)
impairment(500*20)=(100)
finance cost(400+(300-100)9/12)-we deduct it from finance cost
This question has been taken from becker revision question bank page number 115
Pandar acquired 80% of Salva on 1 April 2016.Financial statements at 30 September 2016Pandar
Investment incom-9500
Finance cost(1800)Salva
Finance cost-(3000)
Profit for the year 21000Note:
Immediately after its acquisition of Salva, Pandar invested $5o million in an 8% loan note from Salva.All interest accuring to 30 September 2016 had been accounted for by both companies.Salva also has other loans in issue at 30 September 2016.We know that, 50000*8%=4000*6/12=2000-this 2000 will be added over profit for the year of Salva which is 21000+2000=23000-it is the same as interest on borrowing cost but here is some differences will occur.
When we find profit attributable to NCI, in the second example (Pandar and SAlva), we deducted 2000 from profit for the year of Salva but when we find profit attributable to NCI, in the first example (Bycomb and Cyclip), interest on borrowing cost capitalisation added over Cyclip’s profit for the year not deducted.
This is because, in the case of interest on borrowing cost was capitalised but in the case of loan note it was just INVESTED NOT CAPITALISED THAT IS WHY WE DEDUCT IT .Did i get the gist of this procedure right?
In both case we deduct it from FINANC COST(Sco’s finance cost especially) WHEN PREPARING CONSOLIDATION P/L
Finance cost(1800+(3000-2000)*6/12)
Investment income(9500-2000)
Consolidated profit-44800
Profit attributable to
Owner of parent-(448001800)-43000
NCI-1800
Profit for the year of Salva(21000-2000)19000*6/12=9500*20%=1900
Depreciation (500*20%)=(100)
Or 21000*6/12=10500*20=2100
2000*6/12*20=(200)
1900Depreciation (500*20%)=(100)
1800Say for example if there was investment in the first example (Bycomb and CYClip)
INvestment income (3000-do we have to deduct 100 or + do we have to add it over )?
This doesn’t make sense!
“Consolodated profit-2937
When we find profit attributable to
Owner of parent 2734
NCI-375”
“We know that, 50000*8%=4000*6/12=2000-this 2000 will be added over profit for the year of Salva which is 21000+2000=23000-it is the same as interest on borrowing cost but here is some differences will occur.”
This adjustment has nothing to do with finance costs and cancellations of intra-group costs! This add back is done in order to arrive at the correct (adjusted) time apportionment in the calculation of post-acquisition profits
“… interest on borrowing cost capitalisation added over Cyclip’s profit for the year not deducted.”
This was not deducted in the calculation of the nci because it wasn’t an intra-group matter
“This is because, in the case of interest on borrowing cost was capitalised but in the case of loan note it was just INVESTED NOT CAPITALISED THAT IS WHY WE DEDUCT IT .Did i get the gist of this procedure right?”
Sadly, no, you didn’t
The difference is because, in the first example, the finance cost is not intra-group so cancellation is not applicable whereas, in the second case, it IS intra-group so cancellation IS appropriate
“In both case we deduct it from FINANC COST(Sco’s finance cost especially) WHEN PREPARING CONSOLIDATION P/L”
In the first case, we deduct it from administrative expenses because it has been expensed and should have been capitalised
In the second case, we deduct it from finance costs because it’s intra-group and we also deduct it from investment income … because it’s intra-group
This is irrelevant! I have explained the difference to you without you trying to confuse the issue (and me!) any further
OK?
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