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Good day
Please help to explain the loan and interest adjustment for present value.
Taken from question ‘Baggs’
(Loan excerpt)
Interest rate 5%
Loan of $20m is for 2 years at 6% fixed rate.If you need me to post the entire question just let me know
Thanks in advance
Hi
I don’t recognise the question ( name ) – is it in BPP material or FTCK ( or somewhere else?
Are we meant to be finding the present value or the carrying value for the Stat of Fin Pos?
I can send you a copy of the question. How do I upload it here or can you provide an email for me to send it too?
Ok this is the question:-
Baggs was aquired last yr 80% sub.
Cost of invest – $100m being the amt of cash that will be paid 2yrs after the date of acq.
Share cap & reserves $30m each at acq. date.
Baggs reported income of $20m.
No account was taken of fair valu adj. The following info is relevant at date of acq.1) Interest Rates were 5%
2) Non current assets book value of $15m at acq. and remaining life of 10yrs had a market value of $20m.
3) Baggs had a 2 yr 6% fixed rate loan of $20m
4) Inventory had a fair value of $5m more than carrying value.The parent has group reserves at year end of $400m. Recoverable amt of Baggs is $120m at year end.
Required
Calculate Goodwill,Non Controlling Interest in net assets & Group Reseves.I dont understand the treatment of the Loan
I hope you can help.
Thanks in advance
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I think 5% has nothing to do with the loan – it was given to calculate the present value paid for sub.
You should have BS and you are expected to check if loan is recorded correctly (split between liabilities <1 year and >1 year).
Of course, if it was a loan between sub and parent it should be cancelled at consolidation.
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