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On 1 October 20X8, Picture Co acquired 60% shares in Frame Co. At 1 April 20X8, the credit balances on the revaluation surpluses relating to Picture Co and Frame Co’s equity financial asset investments stood at $6,400 and $4,400 respectively.
The following extract was taken from the financial statements for the year ended 31 March 20X9:
Picture Co ($) Frame Co ($)
Other comprehensive income: loss on fair value of equity financial asset investments
Assume the losses accrued evenly throughout the year.
What is the amount of the revaluation surplus in the consolidated statement of financial position of Picture Co as at 31 March 20X9?
The answer is:
$6,400-$1,400 loss – (800 loss x 60% x 6/12) = $4,760
I’m confused about why the loss is multiplied by 80% and the Frame Co’s financial asset investment of $4400 is not added together?
Thanks in advance.
The revaluation surplus in the equity section of the consolidated SFP is calculated in the same manner as the group retained earnings. That is we take 100% of the parent’s revaluation surplus plus the parent’s share of the post acquisition movement on the subsidiary’s revaluation surplus.
In this question we are given then balances at the start of the year, so the parent’s is the $6,400, that is then reduced by the loss for the year of $1,400.
Also, the subsidiary’s movement since the acquisition date (mid-year, six-months) is the parent’s share at 80% of the pro-rated amount of the $800 loss, hence the 80% x $800 x 6/12.
Hope that helps clear it up for you.