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Hi, i came accross this question in the bpp revision kit.
X Co has owned 70% of Y Co for many years. It also holds a $5 million 8% loan note from Y Co. One of Y Co’s non-current assets has suffered an impairment of $50,000 during the year. There is a balance in the revaluation surplus of Y Co of $30,000 in respect of this asset. The impairment loss has not yet been recorded.
The entity financial statements of Y Co show a profit for the year of $1.3 million. What is the amount attributable to the non-controlling interests in the consolidated statement of profit or loss?
And the solution given is 264k.
Profit for the year- 1300k
Less: Intra group interest- (400k)
(8%*5M)
Less: impairment- (20k)
= 880k*30%= 264k.I don’t understand why the intra group interest is deducted from the subsidiaries profit. The question states that the parent holds the subsidiairies loan notes. So the subsidiary will be the one paying the interest. So if anything, it should’ve been added back.
Kindly help.Hi,
I think that the answer is not right. The intra-group interest does not have an impact on the profit figure as the amount is adjusted in both the parent and subsidiary’s books, so no adjustment to the NCI would be required.
Thanks
Okay. The Intra group loan interest will be adjusted from the Interest expense and investment income of the group entities. Only the items which are not cancelled out is adjusted to the subsidiaries profit to compute the Nci share?
So, only the purp, impairment and excess Fv depreciation should be adjusted to the sub’s profit while calculating the profit attributable to Nci?If the adjustment has one side to the SPL and the other to the SFP then it will impact the NCI, e.g. PURP and FV adjustment.
If the adjustment has both sides to the SPL then there is no impact on the NCI.
So what you’ve said above is correct.
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