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in calculating the pre acquisition retained earning…..I didnt get the point that why the loan notes in adjustment (iii) is being added to the pre-acquisition retained earning… and why the proportionate profit for the year i.e $21000*6/12 is added instead of being deducted from the Retained earnings of Salva… whereas in the Question Pedantic the proportionate profit (3000*6/12) has been deducted from the retained earning of Sophistic.
Please make it clear
Isn’t this the question where a loan note was issued immediately upon acquisition? So there’s half a year’s loan interest that has been deducted in arriving at the year’s profits? So therefore not all revenues and expenses have accrued evenly throughout the year!
Add back the loan interest to arrive at a full year’s pre-interest profits
Time allocate 11,500 / 11,500
Now deduct the loan interest from the second half year
Ok on that one?
When a subsidiary is acquired part way through the current period, we need to arrive at the retained earnings figure for the year in order to see how much is pre-acquisition and how much is post-acquisition
If I include within the goodwill calculation the full year’s subsidiary retained earnings and then deduct the element that is post-acquisition, that will result in me including only the pre-acquisition retained earnings. That’s the way BPP and Kaplan do it
My way is to include in the goodwill calculation the subsidiary retained earnings brought forward and then add on the retained earnings for the pre-acquisition period
There’s more than one way to skin a cat!
Ok?
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