Consolidated statements

Hi Sir,

Thanks for your lectures on this, really helpful. I have just come up against something that I don’t understand, this question;

Really acquired 75% of the equity share capital of Hard on 1 January 2019 when Hard had retained losses of 112000

At Y/E
Retained Earnings of Really are 2,464,000, and Hard are 1,204,000.

The question is what is the total amount of retained earnings to be included in the consolidated statement.

I thought the answer would be 2,464,000 + ((1,204,000 + 112000) *0.75) because at the time of acquisition retained earnings were at a loss, so seeing as everything post acquisition should be the amount that brought the retained earnings to 0, plus everything above 0 as it currently stands.

My answer in my book says that you should deduct the 112000 but I really don’t understand why, can you help me?

Sorry if that’s a very basic question, I have spent a bit of time thinking about it now!

Thanks loads,
Kellie