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Dear Tutor,
Please could I get the answer for the below. Thank you so much in advance!
Alice bought 90% of the equity shares of Bertha two years ago 1 July 2012, When retained earning of Bertha stood 12,000.
During the year Alice transferred goods to Bertha for 45,000 this figure includes mark-up of 50% Two thirds of the goods remained in the inventory at the year end. The balance of the current account between Alice and Bertha is 53,000 at the year end.
Fair value of the non-controlling interest at the date of acquisition was 10,000
Statement of account for retained earnings as at 30 June 2014 Alice was 189,000 Bertha was 72,000.
What should the consolidated retained earning be?
It is all of the retained earnings of Alice (189,000).
Plus 90% of the post-acquisition profits of Bertha (90% x (72,000 – 12,000)) = 54,000
Less, the PURP on goods sold by Alice to Bertha that remain in inventory. The goods remaining in inventory were 2/3 x 45,000 = 30,000. Since this includes a mark-up of 50%, the PURP is 1/3 x 30,000 = 10,000.
So the consolidated retained earnings = 189,000 + 54,000 – 10,000 = 233,000
Hi John.
Question: Unrealised profit is always shared up between the Parent n NCI once a percent is given to validate such right?
Also, why do we exclude just the profit from Inventory for goods left back from intra-group trading and not the entire goods cost??
Thanking you in advance. 😀
No – unrealised profit is not always shared.
It is subtracted from the retained earnings of whichever company sold it to the other. (So if the inventory is held by the subsidiary it means that the parent sold it to them and took the profit, so then the unrealised profit is subtracted from the parent’s retained earnings. And vice versa is the subsidiary had sold to the parent and the parent therefore has the inventory).We only subtract the profit in what is still in inventory. The rest of the intra-group sales must have been sold outside the group and so the profit has been realised and no adjustment is necessary.
The free lectures on this may help you.
I will view the lecture again.
So, unrealised profit is only split between the Parent and NCI only when the goods are purchased from the subsidiary?
Dear Sir, How we can calculate the post retained earning if only given the acquisition retained earning and not mentioned the net profit?
You will be given the Statement of financial position of the subsidiary as at the consolidation date.
You take the retained earnings at the date of the consolidation and subtract the retained earnings at the date of acquisition.
I don;t know if you have watched the free lectures on consolidations, but if not then I think they will help you.
If retained earnings at the date of the consolidation was not given?this type of the question given in the cbe.
It is not possible that the retained earnings at the date of acquisition are not given in the exam, unless of course the shares were acquired on incorporation in which case there are no pre-acquisition retained earnings.
Dear tutor please tell me that while calculating the consolidated retained earning why we subtract the pre acquisition and post acquisition retained earnings? why don’t we take the direct account of the post acquisition retained earning of the subsidiary?
We don’t subtract the post-acquisition retained earnings!!
We take all the retained earnings of the parent company, plus their share of the post-acquisition retained earnings of the subsidiary. If relevant we adjust for the PURP in closing inventory.
I do suggest that you watch our free lectures – they are a complete course for Paper F3 and cover everything needed to be able to pass the exam well.
I am doing a question in which parent company own 100% shares and the retained earning of subsidiary at the time of acquisition is 50000 and the post-acquisition retained earning is 20000. Now in the solution it’s solves as :
$100000 (retained earning of parent)+ (50000-20000) = $130000
good will that rose in this situation is $30000.I am confused that why this subtraction is done. Please help me
No exam question would ever say ‘the post-acquisition retained earnings are 20,000’.
If you have copied the question exactly word for word, then both the question and the answer are complete rubbish 🙂thank you may be some information is miscommunicated that’s creating all this fuss.
Don’t worry – it is no fuss for me 🙂
(And I was not suggesting that you wrote was nonsense 🙂 )
What I wrote earlier is 100% correct – “We take all the retained earnings of the parent company, plus their share of the post-acquisition retained earnings of the subsidiary. If relevant we adjust for the PURP in closing inventory.”
So either you have not copied the question correctly, or the book you found the question in has made a dreadful mistake.
(If you found it in the BPP Revision Kit or on the ACCA website, then let me know and I will check for myself 🙂 )
thank you so much for your help I also had the same concept in mind that you told but I will cross check to find the mistake.
Please Sir, how can I calculate the retained earnings at acquisition when it’s not given. In the Statement of financial position, only the the retained earnings at Reporting is given..the subsidiary was acquired on January.
You will always be told the retained earnings at the date of acquisition, unless the subsidiary was acquired on incorporation in which case the pre-acquisition retained earnings will obviously be zero.
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