Polestar Southstar - retained earnings

Aanniebabe6y ago

So, I have managed to get myself in a muddle with mid year acquisitions. Can anyone help? 01.04.03 Polestar acquired 75% of Southstar, Year end is 30.09.03 P S Profit/Loss for Year 10000 (4600) SOFP Retained Earnings 28500 12000 Goodwill retained earnings 12000 pre acq loss (4600)/12*6 (2300) Retained earnings P S at year end 30.09.03 28500 12000 pre acq -12000 pre acq loss - 2300 if we bought them in April 03 and year end is September 03 - why is the full $12000 at acquisition in goodwill. and removed in sofp? thanks

PP2-D2Tutor6y ago#1

Hi, The question requires you to calculate the post-acquisition retained earnings to go in the NCI and group RE calculation. As the acquisition happened this year then this is simply the 6/12 of the 4,600 loss for the year. We will also need to calculate the net assets at acquisition too, which will appear in the goodwill and NCI calculation, as it is not given in the question. To work out the retained earnings at acquisition we start with the retained earnings at the reporting date of 12,000 and we remove the loss since the acquisition date. This loss is the 6/12 of the 4,600, which is added back as a loss will have reduced the retained earnings since acquisition. Hope that helps. Thanks