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hi
please help me solve the following:on 1 Oct X2, P co acquired 75% of S co’ shares.
summarised SOFP is dated at 31 March X3.
R earnings for S co at:
1 April X2 – (4000)
For y/e 31 March X3 – 8000Adjustment note 1: at the date of acquisition, S co produced a draft statement of p and l which showed it made a net loss for the year of $ 2 million at that date. p co accepted this figure as the basis for calculating the pre and post acquisition split of S co profit for y/e 31 March X3.
the solution for R earning at acqn is (6000) and reporting date figure is 4000.
i am having issue understanding both figures
Hi Sir,
I want to add my question as well on the above question:
1) Why have they taken the Bf figures and not the C/f because a question “highveldt Co” in which they have consolidated the retained earnings for Parent and for subsdiary have used the c/f figures.
2)Why in the above question in cash and equivalent 900 is added , because the money is deducted from one company and added to another (kiind off what we do in Intercompany sales ) we deduct it to nullify the effect , here also as per my understanding it should not be included,Thanks in advance!
Nikitagarwal wrote:hi
please help me solve the following:Hi,
If we have retained earnings of (4,000) at the start of the year and then are told that we have made losses of two million up to the date of acquisition then the cumulative losses at the acquisition date are (6,000). This is then used in the net assets working at the acquisition date.
The figure they use of 4,000 is an error and it should read 8,000 being the figure from the subsidiary’s SFP.
Thanks
1) You have to use whatever method is suitable to the question. In this instance you are given the pre-acquisition profit for the year to be adjusted to the opening figure. In the other question you are able to calculate the post-acquisition figure and adjust the closing retained earnings.
2) This is the cash in transit figure and so is added to the cash balance of the receiving company.
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