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Hi
I need some help with the Laurel Co question in the BPP practice and revision kit please.
For the part where we are calculating group retained earnings, I dont understand what they’ve done in the answer. I got all the numbers except i dont understand why they’re subtracting the pre acquisition retained earnings. I know that when there are no other adjustments to the net assets of the sub you can take the retained earnings at the reporting date and subtract the retained earnings at the date of acquisition to get the post acq movement in RE, and then you take the parents share of that. However, there were other adjustments to be made and so in the net asset table we already included the post acq movement in retained earnings along with other adjustments such as the fair value adjustments and extra depreciation associated with that. So again I dont understand why they’re taking the parents share of the 55 mil post acq reserves and then also subtracting the pre acq retained earnings. Btw the question is completely different in the Kaplan kit cuz over there they ask you to prepare the SPL and theres no associate but in the BPP kit they ask you to prepare the CSOFP so please note that Im referring to the Laurel Co question in the BPP 2020/2021 kit.
Thank you
In order to arrive at profit for the year you always have to consider pre-acquisition Retained Earnings, i.e. Profit for the year = RE post acquisition – RE @ acquisition.
As to why, the RE for the year end is cumulative figure right? So you have to remember that if you take the full RE for the year you will be double counting pre acquisition RE of the subsidiary since this figure was allocated to Goodwill calculation at acquisition (cause that’s how we calculate it, by including Net Assets and RE is part of it).
And only after arriving at pure profit post acquisition you go on with other adjustments necessary to figure out Group consolidated RE.
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