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First problem is HighVeldt (35 revison kit 2012, and 15 or (14) in Text book for june 2014)
Highvedt is a parent, own 75% Samson subsidiary.
Highveldt give a 60mil loan to Samson, at the day of acquisition, interest rate =10%,Sam son have not accounted interest incurred in the arrear.My answer is I cancel the 75% of loan investment in non-current asset of Highveldt and loan note of Samson by an amount of 45mil
and Increase the retain earning of Highveldt by an amount of = 25%*60mil*10%=1.5mil ( interest incurred by NCI)
next, i reduce NCI with the amount of 1.5mil ( interest incurred) to arriving the NCI at the year end.And the solution in the kit is : They cancel out the whole loan like 100% own subsidiary and bring the full interest income of 6mil (10%loan note 60mil) to the retained profit of Highveldt
I can’t understand why they do like that, please explain it for me, (i’m self study)
you have to take in account the 100% of subsidary while calculation.
and for the percetage of subsidiary you do not owned you have to calculate NCI(non controlling interest)If the loan note is 100% owned by Highfeldt, then we need to:
1 – account in Samson for the interest payable – the full amount (Dr Income Statement and Cr Liabilities
2 – account in Highfeldt for the interest receivable – the full amount (Dr Receivables and Cr Income Statement
3 – now we have an asset in Highfeldt which cancels against the SAME amount of the Liability in Samson – because we cannot show an assets receivable from “ourselves” on consolidation.
4 – in preparing the consolidated income statement, we ignore / cancel the interest receivable against the same amount of the finance expense payable
5 – in working 3, consolidated retained earnings, we make the adjustment for the interest receivable (add into Highfeldt’s retained earnings) and the interest payable (deduct from Samson’s retained earnings) to arrive at the situation where we can determine “H’s own + H’s share of S post-acq retained”
6 – the affect on the nci is to reduce the subsidiary’s post acquisition retained profits by the amount of the full loan interest
OK?
@Mike, I’m so sorry,I’m a newbie and I don’t know the rule here, I think if you help people here, they will help you back soon.
I sincerely apologize you. I Hope you and every people here will forgive me!^^.
Many thanks to your answer, now I know how they treat the intra-interest, I forgot the information is Samson had paid it and record it, so, i felt so confused.
Anyway, i searched and found many your answers in the problem Loan notes and Consolidation. You are awesome. Have a nice day. I never do the arbitrary answer again.
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