Pre-acquisition profits
Pre-acquisition profits are a subsidiary’s accumulated profits included in its net assets when the parent obtains control. They form part of acquisition-date net assets for the goodwill calculation, not group post-acquisition retained earnings. Compare acquisition-date and reporting-date retained earnings to identify the subsequent movement, adjusting as required for consolidation.
Worked example
A subsidiary has retained earnings of 40 at acquisition and 70 at year end; the increase of 30 is post-acquisition.
Common mistake
Adding all of the subsidiary’s closing retained earnings to group retained earnings.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | FR | Direct | Official assessment-window verification pending |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | F2 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |