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,
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!
sorry it was a subsidiary not an associate, I should have written:
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?
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?
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?
That’s correct, yes
Thank you Mike
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