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Hi Mike,
Sorry I ask a question again.
Here my question on Dec 2014 past paper, answer on Retain earning. There is an adjustment on “liability adjustment” under Joey’ retain earning of 3.5 which come from Margy’s recognised provision $5. The point I don’t understand is that:
Accounting treatment of provision will be Cr provision Dr I/S
But the answer Cr the provision to P/L, add $5 to Retain earning @YE
What is it about?From memory, I believe that this was an adjustment under the12 month reassessment rule where the figure at the year end, the contingency (?) was understated.
The adjustment was put through as though it were a post-acquisition matter whereas it was a correction to a pre-acquisition situation.
Instead, therefore, of charging the post-acquisition statement of profit or loss, the adjustment should be treated as though it had been correctly treated at acquisition date.
So reverse the profit or loss entry
Ok?
May need some time to digest. Why it need to be reversed? Even though it was treated as acquisition event, it’s nature is still a liability.
Yes, but it should be an adjustment in the goodwill / cost of acquisition calculation.
The post-acquisition profits should not have been reduced for a pre-acquisition adjustment
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