PARENT 75%
SUB 25%
Retained earnings at acquisition:
Parent 19,200
Sub (4,000)
Retained earnings at reporting date:
Parent 7,400
Sub: 8,000
At the date of acquisition the Sub 's statement Profit or Loss shows a loss of 2,000.
At the date of acquisition the FV of a item of plant is 3,000 below the carrying amount. useful life 3 yrs. date of acquisition 01/10/20X2, reporting date 31/03/20X3.
Share capital of SUB is 20,000.
The net asset at acquisition should be:
Share capital: 20,000
Retained Earnings: (4000) + (2,000)= (6,000)
FV adj (3,000)
TOTAL 11,000
The Group Retained Earning should be:
PARENT: 19,200+7,400= 26,600
SUB: (4000)+ 8,000= 4000 + 500(Depreciation: 3,000/3 * 6/12=500) = 4,500 * 75% = 3,375
The right answer add back the pre acquisition loss as following:
SUB: (4000)+8000= 4000 + 6,000(pre acquisition loss) + 500= 10,500.
I do not understand the reason. Can someone help me?
Thank you in advance.