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After watching your lecture regarding the DEC 2009 Q.1 Pandar I realised that the interest on an intra-group loan should be charged only to the POST-ACQ period, thus having a knock-on effect on the calculation of subsidiary net assets, and the NCI share of the adjusted subsidiary profits after tax. However, after studying a similar question in BPP’s textbook (Q.12 Panther Group, p.385) I was again confused since in BPP’s recommended answer (p.415 of the same textbook) the above principle is not taken into account i.e. NCI is calculated on a simple time-apportionment of P.A.T. thus assuming that the intra-group loan interest accrued evenly throughout the year. I believe this treatment to be contrary even to the ACCA suggested methodology but it is very confusing. Could you please shed some light?
THANKS A LOTIs this a loan from the parent to the subsidiary or from the subsidiary to the parent?
If it’s parent to subsidiary, time apportionment is not an issue. If it’s the other way round …. again, time apportionment should not be affected – the subsidiary could probably have had to pay interest on different borrowings. But for the preparation of the consolidated statement of Income the intra-group loan interest paid and received will need to be cancelled from both the consolidated finance expenses and the financial incomes
If that doesn’t answer your problem, I’ll need to check the question again from the revision kit
Well it is from Parent to Subsidiary but the issue arises because it’s a mid-year acquisition. But if I correctly understand your sayings in this case we should first eliminate the interest, say $2,000, from the Subsidiary’s I/S and then time-apportion the rest of its finance costs, i.e.
Finance Costs [1,800 +6/12(3,000 -2,000)]
No, without remembering the question, but based on the information you have given, I believe I would time apportion the income statement and then use the post acquisition profits in the calculation of working 3, retained earnings. But in that calculation, deduct from combined finance income the intra-group interest and from the combined finance costs deduct the amount paid by the subsidiary on the intra-group loan.
If that still does gel, I’ll need to look at the question!
Hope that helps
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