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Hi Mike,
I’ve got two questions I’m hoping you can help me with with regards to the investment gain relating to increasing an investment into a subsidiary.
Firstly, am I right in saying the the purpose of calculating the gain is to cancel it out from the group consolidated statements? In other words, either deduct it from retained earnings or other components of equity as appropriate?
Secondly, I’m going through question 40 from the BPP practice and revision kit, entitled “Case Study Question: Trailer”, which also appears to be question 1 from the June 2013 exam. Before reading the answer, I worked out that there was a gain of $20m (deemed proceeds of $280m minus carrying value of previous investment of $260m). Why has that gain not been accounted for?
Also, the value of the 14% interest in the subsubsidiary has increased in value from the DOA to the year end by $30m. I notice that this amount has been subtracted from the group retained earnings. Why is this?
Thanks very much for your help.
Neil, I’m flummoxed! Is there any particular question where you have seen the gain being eliminated from retained earnings? I’m intrigued (as well as flummoxed!)
Oh please! Please don’t make me go back to Trailer! There are loads of posts about this question that you’ll find in the P2 Ask the Tutor archive.
Will you do me a huge favour and try to search for those to find your answer.
Ok, if you can’t, post again and I’ll drag myself through history to find something for you, but let me ask you to suffer first
Thanks
Hi Mike,
Thanks for getting back. It’s ok, I won’t make you dig up Trailer again! I’ll have a look through the previous posts as you suggested.
Thinking about it, they didn’t subtract the original gain, they just ignored it, as far as I can tell. However, the original investment increased in value from the date it became a subsidiary to the year end date.
I’ll sure I’ll make head or tail of it eventually!
Thanks again.
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