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Dear sir kindly help to calculate the question below
Retained Earnings at 30. 9. 2010 for Sub S stands at $4.5m; total comprehensive
income for the year ended 30. 9. 2010 is $3.9m. Acquisition was on 1. 6. 2010.Required: Show what figures you would use in the Net Assets list at
acquisition (1. 6. 2010) and at consolidation (30. 9. 2010)If S profit for the year is 3.9 and closing retained earnings are 4.5, then retained earnings brought forward (entirely pre-acquisition) must have been 4.5 – 3.9 = 0.6
The acquisition took place 8 months into the current year so 8/12 x this year’s profits are 8/12 x 3.9 = 2.6 and that 2.6 is also pre-acquisition
Thus retained earnings at date of acquisition are 0.6 + 2.6 = 3.2 and your original post tells you the figure at date of consolidation (4.5)
Sir thanks but am still confused how does the 8/12 come in instead of 4/12 since acquisition is 01.06.10 and year end is 30.09.10? your quick response will be highy appreciated.
We are looking for the PRE-acquisition period. So that’s October, November, December, January, February, March, April and May.
Count them on your fingers and it’s 8 months pre-acquisition
Just June, July, August and September that is 4 months POST-acquisition
OK?
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