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Hi.
Im a bit confused here.
At the date of aquisition Subsidiary’s inventorys book value and fair value were $3 million and $3.6 m respectively.At the reporting date 10% of inventory was not sold.
The answer from bpp book guides to deduct 540000(representing inventory sold post aquisition) from post aquisition retained earning. Can anyone explain me the logic or mechanism behind this.Thanks in advance.
Hi,
The fair value adjustment at the acquisition date is $600,000 ($3.6m less $3.0m). At the reporting date it will be for the 10% remaining and so $60,000. If you adjust for these in the net asset working, in the appropriate columns then you will see that there is a $540,000 reduction in the net assets and hence reduction in post-acquisition retained earnings.
Thanks
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