Question Number 108
. On 1 July 2017, Spider acquired 60% of equity share capital of Fly and on that date made a $ 10 million to fly at a rate of 8% per annum
What will be the effect on group retained earnings at the year end date of 31 December 2017when this intragroup transaction is cancelled ?
a) Group retained earnings will increase by $ 400,000
b) Group retained earnings will be reduced by $ 240,000
c) Group retained earnings will be reduced by $ 160,000
Answer
Question number 108
108. C
a) Loss of investment income(10m*8%*6/12)
b) Saving of interest payable (400*60%)
c) Net reduction in group retained earnings
a (400)
b 240
= (160)
Sir i have not understood this calculation
Why have they deducted this as loss of investment income and and what is saving of interest payable
Ask the Tutor ACCA FR
Mcq.
9y ago#1In Spider's (S) records there is a line for investment income (the interest on the loan made to Fly) of $400,000
In Fly'f (F) records there is a line for finance charges (the interest on the S loan) of $400,000
On cancellation, the S retained earnings will decrease by $400,000 and the F retained earnings will increase by $400,000
Let's say that, before cancellation, S had retained earnings of $3,000 and F had retained earnings of $1,600
Without cancellation, the consolidation would be $3,000 + 60% x $1,600 = $3,960
Following cancellation S now has $2,600 and F has $2,000
The consolidation now will be $2,600 + 60% x $2,000 = $3,800
And that is a decrease of $160
OK?
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