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Dear Tutor, I wasnt able to understand why pre ac retain earnings are ignored while calculating NCI investment valuation in example 8 of chapter 7. Only 40% of $1.65 X 80,000 is taken why not also 40% of $40,000 pre ac ret earn? In answer of example 6 share capital and preac ret earn of subsidary are used to calculate NCI investment valuation. Please advice.
I think, from memory because I don’t have the example in front of me!, that this question tells us the share value. This $1.65 is literally the value per share and therefore automatically represents the value of a share in the net assets ( put very simply – market forces makes that statement technically incorrect ) and given that net assets equals shareholders’ funds, and shareholders’ funds includes the retained earnings, then your question is answered – I think!
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