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a question shows 20000 as 8% Loan note in S. the loan was given by P to S soon after acquisition. the profit for the year was 9000 and RE of 69,000 AT 30 nov x7.
the acq date is 1 may x7 and the sofp shown are as of 30 nov x7.
the note on the loan says:
“the loan note in S’s books represents monies borrowed from P during the year. All of the loan note interest has been accounted for”
we have to calculate the RE at acquisition
1. my thoughts went as: this 20k figure must contain the interest figure accrued.
2. and thought about calculating the interest figure so that i cd use it.but then i stopped and looked at the answer
and the answer simply said: RE @acq = 69000 – (7/12)*9000 =69000-5250=63750
this working simply means that the note:
“the loan note in S’s books represents monies borrowed from P during the year. All of the loan note interest has been accounted for”
meant that in the profit of 9000, the interest impact has already been done.
it wasnt very obvious.
“my thoughts went as: this 20k figure must contain the interest figure accrued.” Why would you think this.
What I AM surprised about is that there was no strange profit split.
I would have added back 7/12*8%*20,000 to the 9,000 profit for the year
Split the adjusted profit and then deducted 7/12*8%*20,000 from the second period to arrive at post acquisition profits
thats exactly what i wanted to do. but what stopped me was that if interest was taken into account, i wd need to compute the original loan, since 20k shd inlude the interest portion..no?
am glad that the actual exam questions r clearer.. or i hope they wd be
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