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I remembered I asked the differences btw RE and profit for the year.
RE acc’ profit And profit is profit earned for the current accounting period.
I also remember the question of Rebertas 75% acquisition of he issue share capital of Ignida on 1 August 2009 and the 31 dec. 2009 profit and re were 10,000 and 24,000 though the RE was at 1/1/2009.
Question: Philip acquired 85% of the share capital of Stanley on 1 oct 2001 . The profit for the year ended 31/12/2001 for Stanley was $36,000 . Profits are deemed to accrue evenly over the year . At December 2001 , stanley’s SOFP showed:
Equity share capital $200,000
RE $180,000
What are the net assets on acquisition?
Kaplan solution:
3 months of the post acquisition profit 3/12* 36,000 = 9,000
RE 180,000 – 9,000 = 171,000
Net asset = 200,000 + 171,000 = $371,000Well, I know share capital 200,000
the pre -acq 9/12* 36,000= 27,000
RE 9/12 * 180,000= $135,000
Total = $362,000.Pls , which is more explained and better results ?
Kaplan $371,000
Or mine ? $362,000
If mine was wrong pls where and how do I make amends?
I noticed the difference is the 9,000 but that 9,000 is the post -acquisition period and do not belong to the net asset of Stanley at acquisition.Draw for yourself a time line with:
start point 1 January, 2001
an intermediary point 1 October, 2001 and
an end point 31 December, 2001
If retained earnings at 31 December, 2001 were (per question) $180,000 and
retained earnings for the YEAR to 31 December, 2001 were $36,000 then
retained earnings at 1 January, 2001 must have been $144,000 …
and that figure of $144,000 is ENTIRELY pre-acquisition
So too is 9/12 of this year’s retained earnings pre-acquisition
So pre-acquisition retained earnings are $27,000 (ie 9/12 * $36,000) + the whole of $144,000 (as at 1 January, 2001) = aggregate retained earnings as at date of acquisition of $171,000
Add to this the $200,000 share Capital = $371,000 net assets as at date of acquisition
Let me turn the question back on you …
“Pls , which is more explained and better results ?
Kaplan $371,000
Or mine ? $362,000”
What do you think?
OK?
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