Group retained Earning

I’m not sure I understand you! I always use retained earnings at date of acquisition and retained earnings at reporting date.

If you’re saying “Why do we not simply use shareholders’ equity as at acquisition date and as at reporting date?” it’s because we’re trying to calculate consolidated retained earnings! In addition, shareholders’ equity could include other matters such as revaluation reserve and we don’t want to combine earnings with revaluations

OK?

No, you’ve got your dates wrong. It’s the parent’s own ( 100% ) + the parent’s share ( in your example it’s 80% ) of the subsidiary’s post acquisition retained earnings ( less the parent’s share of any goodwill impaired since acquisition )

In BOTH your sentences above you have stated “80% x retained earnings at acquisition – retained earnings at reporting date” whereas it should be “80% x retained earnings at reporting date – retained earnings at acquisition”

And you’re correct …. there are answers in, for example, Kaplan material where net assets are used to determine the post acquisition retained earnings. That’s ok, provided there are no other reasons why net assets should have increased.

That’s why I do it my way ( sorry Sinatra ) and restrict my working purely to the movement in retained earnings rather than consider the movement in net assets

OK?

Welcome

What do you mean “the right way to deduct ……”

In working W3 set out the columns as shown on the videos.

Calculate the pup and / or the excess depreciation.

Decide which company needs to be adjusted

Put the pup / excess depreciation in the column of the company that needs to be adjusted

And then proceed as normal?

Does that answer your question or have I misunderstood you?

Deduct the FULL amount of the pup from the selling company’s retained earnings in working W3.

Then take H’s share of that adjusted post-acq retained earnings (where it was S that made the sale giving rise to the pup – if it was P making the sale, then the H share of S will not be affected by the pup)

Have you watched the videos? And did you stay awake all the way through? If so, this is adequately covered within those recordings …. so maybe you in fact didn’t stay awake all the way through!

It’s one of the videos on consolidations – you should be able to find it for yourself!

It looks like it’s the second video from chapter 8 “Inventory sold at a profit within the group”

I cannot count the number of times that I say in the lecture recordings ….

“H’s own

+

H’s share of S post-acq retained

–

Goodwill impaired since acquisition (just our share)

There isn’t a single word in that little “song” that’s superfluous!

And those three lines say it all! There’s nothing more to get involved with

In fact, it cannot be simpler

It can be more convoluted (sorry BPP and Kaplan) but if you choose to follow religiously those three lines, you cannot go wrong!

The amount of deferred consideration that needs to be unrolled since date of acquisition needs to be deducted from the parent’s retained earnings figure

The pups need to be deducted from the retained earnings of the company that has recognised those profits when you are calculating consolidated retained earnings

The loss on equity instruments? It depends! If they are FVTPL then the movement needs to be accounted for in the calculation of consolidated retained earnings

That’s good 🙂

Hi,

I’ve not really heard the term used but I imagine it is where the income exceeds the costs and so would be a profit type surplus. I feel that this terminology would be used more in charity accounts as opposed to company accounts, where the aim is to generate a surplus of income over the costs incurred.

Thanks