Hello,
I am a bit confused about an exercise and it would be very helpful if someone can explain where I make mistakes. The problem goes like this:
" Tin Co acquired 90% of the equity share capital of Drum Co on 1 April 20x3. The following info relates to the financial year to 31 Dec 20x3 for each company.
Retained earnings at 1 Jan 20x3 840000(Tin co). 170000(Drum co)
Profit for the year. 70000. 60000
Ret earnings at 31 Dec 20x3. 910000. 230000
Neither co. paid dividends during the year. What profit is attributable to the parent co in the consolidated IS of Tin Group for the year to 31 dec 20x3?
I solved it like this:
Profit on consolidation: 130000
Profit attributable to:
- parent. 124000
-NCI. 10% x 60000= 6000
Movement in ret earn
Ret earn(parent): 840000
Post-aquisition earn: 90%x9/12x60000=40500
=> ret earn: 840000+40500+124000=1004500.
However, we are only interested in the consolidated profit. Therefore, we take 124000 and add to it 40500? But even so, I do not get the right answer.
The book only takes the 70000 profit of the parent and adds 40500- and I do not understand why- aren't we supposed to add the profits for consolidation and afterwards appoint a proportion to each co?
Thank you!