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Dear Mr.John,
Overall, I have found out the way to resolve this exercise, but I am still confused about “Retained Earnings account”
Please clarify the structure of “Retained Earnings” in Subsidiaries Company (S Co)
For example, question 25.1 Revision kit BPP (Swing and Cat), they provided some informations:
– RE @ acquisition date (1.1.X8) = 50
– RE @ reporting date (31.12.X8)=200
– Profit for the year of S Có = 55It’s only one of the many examples I want to give you, because It’s very similar structure.
Specifically, RE for the year X8 has increased by 150, but the profit S.Co earned in X8 was only 55. Can you show me some reasons why RE in S.Co could increase by large amount which was sharply higher than profit they earned?
Thank you so much
In general, the retained earnings will have increased by the profits of all years since the date of acquisition – not just the current year.
However, in the question you refer to the retained earnings should have only increased by 55,000 because the acquisition was at the start of that year.
Whoever wrote the question was not thinking (and that won’t happen in the real exam).If you find more questions where the same problem occurs then let me know. I would hope that it has not happened a lot despite what you have written.
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