Pre Acquisition Loss

P Co acquired all 50,000 $1 ordinary shares in S Co for $20,000 on 1 January 20X1 when there was a debit balance of $35,000 on S Co’s retained earnings.

In the years 20X1 to 20X4 S Co makes profits of $40,000 in total, leaving a credit balance of $5,000 on retained earnings at 31 December 20X4. P Co’s retained earnings at the same date are $70,000.

My trouble is why the answer added the pre-acq loss of 35 with the credit balance of 5 (40-35) in calculating the Cons Ret Earning. It’s a loss, it shouldn’t be added. Shouldn’t it be H’s own, 70 plus H’s share 100% of post acq, 5 only? Why 40?