Unrecorded tax liability – June 2012 q1

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    desperatedan
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    Hi Mike,

    In the ACCA answers for q1 of june 2012 the consolidated retained earnings are calculated. But there is no adjustment made for the unrecorded tax liability of $1 million in the associate company, please could you tell me why this is?

    Thank you for your help,

    Dan


    Avatar of MikeLittle
    MikeLittle
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    Maybe because the Investment in Associate is calculated by “Cost of acquisition + Share of post-acquisition retained earnings – less any impairment in the investment”

    Does that answer it, or must I look up the question when I get to work on Monday?

    If it doesn’t satisfactorily answer your question, do please post again!


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    desperatedan
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    sorry it was a subsidiary not an associate, I should have written:

    Quote:
    In the ACCA answers for q1 of june 2012 the consolidated retained earnings are calculated. But there is no adjustment made for the unrecorded tax liability of $1 million in the subsidiary company, please could you tell me why this is?

    Within the liabilities section of the balance sheet the deferred tax is increased by $1million, but I don’t see a matching entry in equity – should there be one?

    Thanks,

    Dan


    Avatar of MikeLittle
    MikeLittle
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    Hi

    The entry which has been effected is to increase goodwill ( within working 2, the goodwill calculation ) and to increase the long term liability by crediting the deferred tax liability.

    Now, exactly what double entry are you trying to put through?


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    desperatedan
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    Thank you Mike,

    Is it correct to say that even though the extra $1m of will have reduced the equity of Square this is not reflected in the consolidated statement of financial position in the equity section because pre-acquisition equity of the subsidiary is not used directly in the calculation of equity for the group?

    Many Thanks,

    Dan


    Avatar of MikeLittle
    MikeLittle
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    That’s correct, yes


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    desperatedan
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    Thank you Mike


    Avatar of MikeLittle
    MikeLittle
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    You’re welcome

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