Goodwill Calculation Past Exam - December 2013

Hi, If memory serves me right then we are given the retained earnings at the reporting date and need to work backwards to get the retained earnings at the acquisition date. The lossed will have reduced the retained earnings from the acquisition date to the reporting date, so therefore to work backwards from the reporting date we will need to add the losses back. Thanks

Hi, It is much more straight forward to work backwards and it looks like that in your calculation you have deducted the losses, which is incorrect. Losses will have reduced the year-end retained earnings from what they were at acquisition so we need to get to a higher retained earnings figure at acquisition than at the reporting date, so therefore the losses are added back. In the Dec'14 exam the subsidiary made profits and not losses, so we would need to deduct these profit when working backwards to get the retained earnings at acquisition. Hope that clears it up for you. Thanks