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1) At the date of acquisition the fair values of Savannah’s assets were equal to their
carrying amounts with the exception of Savannah’s land which had a fair value of
$500,000 below its carrying amount; it was written down by this amount shortly
after acquisition and has not changed in value since then.Dont we have to adjust it in plant property and equipment ?
2)Consolidation :
Immediately after acquisition, Plastik accepted a $1 million 10% loan note from Subtrak. It has not talked about interest paid on the question.
My question is do i need to take finance cost into account so as to calculate post and preacquisition profit to calculate reatined earning at the reporting date ?No – the question actually tells you that it was written down shortly after acquisition! Why do you want to write it down AGAIN?
Re Plastik and Subtrak, yes, it sounds like you should take into account the interest when calculating the split of pre- and post-acquisition profits
I was thinking of deducting the fair value adjustment from plant,property and equipment.But Yes !!
So does that mean whenever there is issue of loan note after acquisition. we must calculate postacquisition profit on its basis ?
Thinking about the interest adjustment issue, it really depends where the question leads you.
You see, it could be the case that the loan was borrowed from the parent post-acquisition to repay a loan that the subsidiary had borrowed from, say, a bank
I’m going to change my mind about the need to take it into account on every occasion. As I have just said, it depends where the question leads you
I really dont get the point. What if it is done to pay interest of bank as you said.?
Where there is a mid-year acquisition and there is an intra-group loan that was transacted shortly after the acquisition date and we are faced with calculating retained earnings as at acquisition date, add back the loan note interest, split those adjusted profits, then deduct the post acquisition loan note interest from the post acquisition apportioned share of retained profits for the year
Is that better?
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