RETAINED EARNINGS

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330 Paradigm Co (Dec 2011 amended)
On 1 October 20X2, Paradigm Co acquired 75% of Strata Co’s equity shares by means of a share exchange of two new shares in Paradigm Co for every five acquired shares in Strata Co. In addition, Paradigm Co issued to the shareholders of Strata Co a $100 10% loan note for every 1,000 shares it acquired in Strata Co. Paradigm Co has not recorded any of the purchase consideration, although it does have other 10% loan notes already in issue.
ANSWER
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4 Retained earnings
Per draft

Paradigm Co Strata Co

$’000
$’000
26,600 4,000

Add back pre-acquisition loss 6,000

10,000

PURP (W2) (600)

Gain (loss) on equity investments* (400) 700

Movement on fair value adjustment (W6) 500

11,200
Group share of Strata Co -75% x 11,200
8400
Group retained earnings 34,000

Good day,Please I don’t understand why the 6 months interest on the loan note given as consideration was not removed from the group’s retained earnings.I’ll appreciate if you can explain better