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sir i couldnt understand finance cost in 1st question of Dec 2009 attempt, how is it calculating (3000-2000)*6/12+2000
i tried much but couldnt understand
Point number 2 in the question is important! “Immediately after …” Pandar has invested $50m in a loan note issued by the subsidiary for 6 months at 8%
The interest received by Pandar on that investment is ENTIRELY in the second half of the year. So, deduct the 2,000 ( 8% x 6/12 x $50m ) from the full year’s expense of 3,000. That leaves 1,000 which is deemed to accrue evenly through the year. Time apportion that 1,000 giving 500 relating to the post acquisition period. Now add the 2,000 from above which we know relates to the post acquisition period and that gives us a finance charge for the subsidiary in the post acq period of 2,500.
Add to this the Pandar finance costs for the year and we arrive at 1,800 + 2,500 = 4,300 finance costs. However, 2,000 of this amount is payable WITHIN the group, and needs to be eliminated ( reduce investment income 2,000, reduce finance charges 2,000 )
The finance charge figure is therefore 4,300 – 2,000 = 2,300, as per the answer.
Good luck on Wednesday
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