Mini Excercise- Chapter 10-Goodwill- Questtion No-8

It's the interest on the loan Normally revenues and expenses are deemed to accrue evenly but, in this case, there is an expense that relates solely to the post-acquisition period - the loan interest So profit for the year after interest is 21,000 Therefore profit for the year before interest is 21,000 + 2,000 Now time apportion into 2 half years of 11,500 Now deduct the loan interest from the second half And we arrive at a profit split of 11,500 and 9,500 OK?

Sir, I have not seen any scope for interest on loan in the question. I strongly doubt you are mentioning about a different question. The following is the question which I was referring. :- Question 8 On 1 April, 2009 P purchased 80% of the equity shares in S. The acquisition was through a share exchange of three shares in P for every five shares in S. The market prices of P’s and S’s shares at 1 April, 2009 were $6 per share and $3.20 respectively. The following information for the equity of the companies at 30 September, 2009 is available: P S Equity shares of $1 each P-200,000 s-120,000 Share premium P- 300,000 Retained earnings 1 October, 2008 P- 40,000 S- 152,000 Profit for the year ended 30 September, 2009 P- 47,200 S- 21,000 The fair values of the net assets of S at the date of acquisition were equal to their carrying amounts with the exception of an item of plant which had a carrying amount of $12 million and a fair value of $17 million. This plant had a remaining life of five years (straight-line depreciation) at the date of acquisition of S. All depreciation is charged to cost of sales. In addition S owns the registration of a popular internet domain name. The registration, which had a negligible cost, has a five year remaining life (at the date of acquisition); however, it is renewable indefinitely at a nominal cost. At the date of acquisition the domain name was valued by a specialist company at $20 million. The fair values of the plant and the domain name have not been reflected in S’s financial statements. The non-controlling interest in S is to be valued at its (full) fair value at the date of acquisition. For this purpose S’s share price at that date can be taken to be indicative of the fair value of the shareholding of the non-controlling Interest.

No, it's the same question HOWEVER!!!!! If you look at the solution on page 251, right at the bottom of the page, you'll see the line 'Immediately after acquisition P invested $50 million in an 8% loan note issued by S' THAT accounts for the $2,000 add back before we split the profit It's on my list of corrections-to-be-made - that information should, of course, have been included in the question on page 225 Sorry Incidentally, if you had checked lower down on this forum, you would have found the same question and the same response! (It was exactly one week ago, 17 August, and asked by 'bojanbih')