Basic group structures – FV Adjustment

Dear Sir,

In Chapter 4, Example 2 -Basic Consolidation, we are told that the excess in FV is $400million. Shouldn’t a FV adjustment mean that our RE in the subsidiary is understated by $400 million? Why do you separate the $400m in your workings? Can i include it in my workings for RE?

Subsidiary Retained Earnings
as per reporting date 800
FV adjustment (excess) 400
FV adjustment (dep’n) -80

Therefore adjusted as per reporting date = 1,120

adj pre -acquisition (450+400) -850

Therefore post acquisition = 270