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BPP F7 Revision and Kit 2016-2017 has the following question:
Brigham has owned 70% of Dorset for many years. It also holds a $5 million 8% loan note from Dorset. One of Dorset’s non-current assets has suffered an impairment of $50,000 during the year. There is a balance in the revaluation surplus of Dorset of $30,000 in respect of this asset. The impairment loss has not yet been recorded.
The entity financial statements of Dorset 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?The solution is that: $’000
Profit for the year 1,300
Intra-group interest (5m × 8%) (400)
Impairment (50,000 – 30,000) (20)*
880
× 30% 264
The answer is 264.
I wonder that Brigham holds a $5 million 8% loan note from Dorset; therefore, Dorset has make annual payment of 0.4m to Brigham, and this expense has to be deducted to arrive at $1,300k profit for the year for Dorset . Therefore, this expense should be added back to calculated NCI, and should not be deducted as the solution given.
Please help me verify this!
Thank you!I believe that neither you nor BPP has got this right!
If Dorset had not borrowed $5 million form Brigham, presumably it would have borrowed that amount from a bank so the $400,000 should have been deducted already in arriving at $1,3000 profits
That’s where I disagree with BPP and agree with you – the $400,000 is already deducted in arriving at $1,300,000
But the idea of cancellation is for presentation purposes – to eliminate the silly position where, when we consolidate, we would be showing interest payable of $400,000 and interest receivable of $400,000
The elimination is a presentation point for the purposes of a more sensible consolidation
So now I’m disagreeing with you too
I believe that the nci should be allocated 30% * $1,300,000 – $20,000 = 30% * $1,280,000 = $384,000
Does that make sense?
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