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I am so confusing “8% loan note interest” in this question.
i) why “8% loan note interest =(2,000)” need include in pre-acqisition reserves ? 152,000 + (21,000 + 2,000) x 6/12
ii) Investment Income – why need to deduct $2,000 ?
iii) Finance Cost – I have see the answer but i am not understand , how to calculate finance cost in Salva post aquisition = $2,500 & why need to deduct $2,000 again ?
Thanks alot 🙂
Sorry, one more question
iv) how to calculate the pre & post aquistion of Salva ?
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I also kill myself in understanding impacts of note (ii)
And here is my understanding, hope it can make clearer:Quote:i) why “8% loan note interest =(2,000)” need include in pre-acqisition reserves ? 152,000 + (21,000 + 2,000) x 6/121. Per Q: “Pandar invested loan note from Salva right after its acquisition (01.04.2009) of Salva”.
We need to calculate Goodwill @ acquisition date but not @ B/S date.
As Pandar invested loan note after acquisition–> Intest loan note accured here is @ post-acquision.
So, we must eliminate interest expense out when calculating g/w @ acquisition date.2. Per Q: “All interest accruring to 30/9/2009 had been accounted for by both companies”
It means that: 21m RE of Salva for the year ended 30/9/09 (01.10.08-30.09.09) already included post-acquisition payable interest expense on loan note 2m ($50m x 80% x 6/12) to Pandar.-> Hence, RE (Group reserve) of Salva for the year ended 30/9/09 @ acquistion (21m+2m)
Why need add 2m but not deduct 2m. ‘coz it is expense but not revenue.
Lets say: RE 21m = one number A – post-acquisition interst expense (2m)
–>To exclude this interest expense 2m, A = 21m + 2mTake note:
+ FV adj & G/w @ acquisition date
+ NCI & Reserve @ B/S date
G/w of Group = Purchase consideration – FV of net asset of Subsidiary @ acquisition
+ Purchase consideration = 345,6m (Pandar) + 76,8m (Salva) = 422.4m
+ FV of net asset of Sub (Salva) @ acquisition
= [(120m +152m+(21m+2m)*6/12) (NBV)+ 25m (FV adj) = 308.5m
Group ‘s g/w = 422.4m – 308.5m = 113.9mQuote:ii) Investment Income – why need to deduct $2,000 ?Need to deduct $2000 ‘coz it is intra-trading company.
Investment income in Group Panda:
. Panda: Investment income (interest & dividend) (per Q)…9500
. Interest income on loan note ($50m x 8% x 6/12)………….(2000)
. Dividend received from Salva (8000×80%)…………………..(6400)
Investment income in Group = 1100Quote:iii) Finance Cost – I have see the answer but i am not understand , how to calculate finance cost in Salva post aquisition = $2,500 & why need to deduct $2,000 again ?Frankly, I dont understand when reading the answer, add 2000 then deduct 2000. So confused. Let’s make it more simple:
Finance cost
. Panda: Finance cost ………(1800)
. Salva consolidate: (3000-2000)*6/12 = (500)
Similar to investment income, as 2000 is intra-interest which Salva accounted as its expense, we need to exclude it in group.
Finance cost in Group = (2300)I’ll try to look at the question in the next couple of days – when I can get to the office – and I’ll let you know after I’ve seen the problem.
Thanks Trangdh & Werty.
I trying understand the answer. Thanks for your reply. ^.^
OK
But for the loan interest, the Salva profit for the year would have been 21,000 + 2,000 loan interest. Therefore, retained earnings at date of acquisition would have been the amount brought forward + 6/12 of 23,000 = 11,500. Post acquisition retained will be ( 6/12 of 23,000 ) – 2,000. expenses are generally deemed to accrue evenly – unless otherwise told. Here we are told that 2,000 loan interest is specifically for the post acquisition period!
Does that help?
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