Effect on group retained earnings

SSarah5y ago

Hi, On July 20X7, Spider Co acquired 60% of the equity share capital of Fly Co and on that date made a $10m loan ro Fly Co at a rate of 8% per annum. What will be the effect on group retained earnings at the year end date of 31 December 20X7 when this intragroup transaction is cancelled? Answer is: There will be no effect on group retained earnings. I don't understand how it is calculated.

SSarah5y ago#1

Is it because they both cancelled each other out? Dr Group finance income $400k Cr Group finance costs $400k How is it related to retained earnings?

P2-D2Tutor5y ago#2

Hi, Yes, as there is the cancellation of an income related item and expense related item there is no impact on the profits and as profits feed into retained earnings, there will be no impact on the retained earnings. Thanks

SSarah5y ago#3

Thanks

P2-D2Tutor5y ago#4

You're welcome

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